Metsä Tissue's Q2 sales good, but profits down due to high raw material costs
Metsä Tissue, producer of tissue and cooking papers, reported sales of 456 (435) million euros and operating profit excluding non-recurring items of 31 million euros (41) for the fiscal quarters ending June. Net sales showed an increase of roughly five per cent on the corresponding period last year as a result of higher sales volumes (+3%) and a favourable exchange rate (+2%). Sales of Metsä Tissue's own brands showed a year-on-year increase of 12 per cent. Particularly Lambi, Katrin and Serla were in good demand. The operating profit was heavily impacted by sharp increases in the cost of raw materials, pulp and, especially in the second quarter, recovered paper. Pulp prices have risen by approximately 50% from the end of 2009 and recovered paper prices by more than 30% due to high demand and tight supply. Some negative impacts were mitigated by successful pulp hedging. In the second quarter a 7 million euro (cash 3 million euro and 4 million non-cash) non-recurring charge was booked related to the Polish development project. The company additionally faced unforeseen challenges in the form of industrial actions in Sweden and resultant unexpected inputs and costs. Metsä Tissue published two major business development plans geared to ensure sustainable business operations and growth. A development plan for its Polish operations was published in May. The plan aims to strengthen the company's position in Poland, increase its paper production capacity further through investments and enhance its product, brand and service offering. The plan is to consolidate Polish paper production at the company's Krapkowice mill and discontinue paper making at the Konstancin-Jeziorna mill by the end of 2012 at the latest. Another development programme related to the company's Baking and Cooking business was published in June, with the company signing a Memorandum of Understanding (MOU) to buy a specialty paper machine (PM5), related equipment and other assets at M-real Corporation's Reflex mill in Germany. The company also announced that it will initiate statutory negotiations with personnel at Metsä Tissue's Mänttä mill as well as with employees in its Finnish-based Baking & Cooking business. The negotiations will address options for strengthening, securing and improving the profitability of the company's Baking & Cooking business. During the spring, the company successfully installed two napkin machines at the Pauliström mill in Sweden. These lines on top of existing ones in Germany will bring synergies and further enhance the company's supply reliability. In June Metsä Tissue announced that from September onwards the Lambi brand will offer consumers and retailers a complete range of napkins featuring trendy design patterns and a matching single-colour selection. Additionally, Consumer business launched in Scandinavia Lambi Kids concept and toilet tissue targeted to families with children. Serla Akrobat, an unique combination of household towel and dispenser designed by an awarded Finnish team, was launched in Norway. Mola and Tento Gigant XXL were introduced in Eastern Europe during the second quarter. The rebuild of PM10 at Metsä Tissue's Mänttä Mill was brought to conclusion ahead of schedule in April. The investment has increased energy efficiency and further improved the quality of Lambi, Serla and Katrin products. As part of Metsä Tissue's Network to Grow strategy, collaborations with various academies have been initiated. In June, an international research team representing Karlstad University, Metsä Tissue and four other businesses was appointed to look into ways of enhancing the environmental and economic sustainability of tissue paper production. The demand for tissue and cooking papers is expected to remain stable. The high price of pulp and recovered paper is still causing cost pressure, which will carry over into selling prices during the second half of the year. Efforts to further harmonise common practices, processes and systems will continue. Consumer and customer focused innovation will retain high priority as a key focus area. Tissue and Cooking Papers 1-6/10 1-6/09 Q2/10 Q2/09 QI-IV/09 -------------------------------------------------------------------------------- Sales 456 435 231 217 890 EBITDA 49 62 19 33 135 - ” -, excl. non-recurring items 52 62 23 33 135 Depreciation and impairment -24 -21 -14 -10 -42 Operating result 24 41 5 22 93 - ” -, excl. non-recurring items 31 41 12 22 93 Capital expenditure 11 11 7 7 35 Personnel at end of period 3 254 3 274 3 254 3 274 3 150