Metsäliitto Group Interim Report 1 January - 30 September 2006
Metsäliitto Group STOCK EXCHANGE RELEASE
25.10.2006 1 PM
METSÄLIITTO GROUP INTERIM REPORT 1 JANUARY - 30 SEPTEMBER 2006
OCTOBER 25, 2006
Metsäliitto Group's operating profit excluding non-recurring items, was EUR 173
million in January - September
Result for January - September
. Sales EUR 6,919 million (EUR 6,378 million 1-9/05). Growth compared with the
corresponding period last year was 8 per cent.
. Operating profit excluding non-recurring items was EUR 173 million (EUR 68
million in 1-9/05), and after non-recurring items EUR 139 million (63
million in 1-9/05).
. Result before tax was EUR -2 million (EUR -118 million in 1-9/05).
Result for July - September
. Sales EUR 2,246 million (EUR 2,057 million in Q3/05). Growth compared with
the corresponding period last year was 9 per cent.
. Operating profit excluding non-recurring items was EUR 65 million (EUR 43
million in Q3/05), and after non-recurring items EUR 68 million (EUR 45
million in Q3/05).
. Result before tax was EUR 14 million (EUR 13 million in Q3/05).
Events in the third quarter
. Metsäliitto Group commenced the process to divest its Norwegian subsidiary
Moelven Industrier ASA.
. The business of the Hartola module factory was sold to Finndomo.
. The International Court of Justice in The Hague rejected Argentina's
demands concerning discontinuation of the construction of Metsä-Botnia's
pulp mill in Uruguay.
. The European Commission completed the competition authorities'
investigation into fine paper, which had begun in 2004.
"During the third quarter, the building of the new Metsäliitto Group continued
with divestment of non-core business. M-real's restructuring programme, announced
on 18 October, is the latest example of our serious commitment to developing in
the long run the only major forest industry company still under Finnish ownership
into an efficient and profitable organisation."
Kari Jordan, President & CEO, Metsäliitto Group
Metsäliitto Group
Income statement 2006 2005 2006 2005 2005
(EUR mill.) 1-9 1-9 QIII QIII 1-12
Sales 6919 6378 2246 2057 8643
Other operating income 129 121 40 43 148
Operating expenses -6533 -6045 -2092 -1924 -8182
Depreciation and impairment
losses -376 -391 -126 -131 -559
Operating profit 139 63 68 45 50
Share of results in
associates 4 0 2 2 4
Net exchange gains / losses 6 -23 4 0 -27
Other financial income &
expenses -151 -158 -60 -34 -187
Result before tax -2 -118 14 13 -159
Income tax -46 8 -21 -5 15
Result for the period -48 -110 -7 8 -144
Metsäliitto Group
Key figures 2006 2005 2006 2005 2005
1-9 1-9 QIII QIII 1-12
Return on capital employed, % 3.2 1.7 4.4 3.5 1.2
- " -, excluding non-recurring
items 3.9 1.8 4.2 3.4 2.1
Return on equity, % -2.4 -5.4 -1.1 1.2 -5.3
- " -, excluding non-recurring
items -0.7 -5.0 -1.5 0.8 -3.0
Equity ratio, % 29.7 30.8 29.7 30.8 30.5
Net gearing ratio, % 145 131 145 131 137
Interest-bearing net liabilities,
EUR mill. 3787 3476 3787 3476 3631
Capital expenditure, EUR mill.
552 485 163 155 692
Personnel 29388 29619 28762 29520 29007
Business areas
Sales and Operating profit Wood
1-9/2006 Prod- Tissue
(EUR mill.) ucts Pulp *) Paper and
Wood Indus- Indus- & Board Cooking
Supply ry try Industry Papers
Sales 1086 1563 971 4186 578
Other operating income 11 11 21 98 8
Operating expenses -1062 -1461 -766 -4034 -534
Depreciation & impairment
losses -5 -52 -74 -275 -38
Operating profit 30 61 152 -25 14
*) Represents 100%. The Metsäliitto Group consolidates 53% of the Pulp Industry's
figures.
The interim report is unaudited
INTERIM REPORT January - September 2006
Sales and result
The Metsäliitto Group's January-September sales increased by 8 per cent compared
with the corresponding period last year, amounting to EUR 6,919 million (6,378).
The corresponding figure for 2005 is not comparable because of a labour conflict
in the Finnish forest industry.
Operating profit excluding non-recurring items was EUR 173 million (68). The net
amount of non-recurring items was EUR -35 million, and most of them were already
entered in the second quarter. The non-recurring costs, EUR 56 million, consist
of a loss from assignment from Pont Sainte Maxence paper mill and restructuring
programmes at some mills in Central Europe. The non-recurring income, EUR 21
million, consists of a group reserve of EUR 17 million generated from Metsä
Tissue's special issue and an income of EUR 4 million from real estate sales.
Operating profit after non-recurring items was EUR 139 million (63).
The Metsäliitto Group's net financial expenses were 2.1 per cent (2.8) of sales
in the review period. Financial income was EUR 17 million (18), income from
associates was EUR 4 million (0) and financial expenses were EUR 168 million
(176). Net exchange gains/losses were EUR 6 million (-23).
Result before tax was EUR -2 million (-118). Taxes, including the change in
deferred tax liability, were EUR -46 million (+8). The net result for the period
was EUR -48 million (-110), of which EUR +27 million (-37) was attributable to
the owners of the parent company and EUR -75 million (-73) to the minority
interest.
The Group's return on capital employed in January-September was 3.2 per cent
(1.7) and return on equity was -2.4 per cent (-5.4). Excluding non-recurring
items, the Group's return on capital employed was 3.9 per cent (1.8) and return
on equity was -0.7 per cent (-5.0).
Balance sheet and financing
Metsäliitto Group's total liquidity was EUR 1.9 billion at the end of September
(12/05: 1.6). Of this, EUR 0.2 billion (0.2) was in terms of liquid assets and
investments, and EUR 1.7 billion (1.4) in binding credit-facility agreements not
included in the balance sheet. For its short-term financing needs, the Group also
had about EUR 0.6 billion in non-committed domestic and foreign commercial paper
programmes and forward credits.
The Group's equity ratio in September was 29.7 per cent and gearing was 145 per
cent (12/05: 30.5% and 137%, respectively). Interest-bearing net liabilities
stood at EUR 3,787 million (12/05: 3,631).
Metsäliitto Cooperative's members'capital grew by EUR 20 million in January-
September. The actual members' capital grew by EUR 7 million, the additional
members' capital A grew by EUR 8 million and the additional members' capital B
grew by EUR 5 million.
At the end of September, Metsäliitto Cooperative had 130,947 (130,874) members.
Personnel
The Metsäliitto Group employed an average of 29,388 people during the period (1-9
2005: 29,619). At the end of September, the number of personnel amounted to
28,762 (9/05: 29,520). Compared with the previous year, the number of personnel
has decreased by some 900 in Paper and Board Industry and by about 260 in Wood
Products Industry. In Tissue and Cooking Paper, the number of personnel has
increased by some 460 because of the Tento deal.
Investments, acquisitions and divestments
In January-September, the Metsäliitto Group's investments in property, plant and
equipment and acquisitions totalled EUR 552 million (485).
In July, Metsäliitto Cooperative and Finndomo signed a contract on transferring
the business operations of the Hartola module factory to Finndomo as of 1
September 2006. Metsäliitto retained the ownership of one element production line
in the factory premises. The line manufactures elements for the Hartola factory,
for example.
Metsäliitto Wood Products Industry continued to concentrate its business on wood-
based products and solutions by selling the business operations of HSL Elements
to PW Interior Oy. The business operations were transferred to the new owners as
of 1 September 2006.
In accordance with the refocused strategy in Wood Products Industry, Metsäliitto
has commenced the process to sell its Norwegian subsidiary Moelven Industrier
ASA. In terms of sales, Moelven is one of the leading suppliers of building
products and accompanying services in Scandinavia. In Metsäliitto Group's
financial statements, Moelven's assets and liabilities are presented on separate
lines.
Metsä-Botnia's Svir Timber sawmill in Podporozhye, Russia, has had a good start,
and the production target for the first year will be achieved.
The pulp mill project in Uruguay
The Uruguay pulp mill investment is progressing in accordance with the planned
schedule and budget. Argentina had demanded immediate discontinuation of the
construction work, but the International Court of Justice in The Hague refused
these demands in July.
In October, World Bank's International Finance Corporation (IFC) published the
results of its study concerning the project's environmental and socioeconomic
impacts. The results confirmed previous study results, according to which the
mill will not cause any significant adverse effects on the environment or the
present commercial and industrial life in the area.
The Metsä-Botnia mill, which will produce one million tonnes of eucalyptus pulp,
is expected to start up in the third quarter of 2007. The estimated project cost
is USD 1.1 billion.
Organisation
Thomesto Ltd., which focuses on international wood supply, was merged with the
parent company Metsäliitto Cooperative on 30 September 2006. Finnforest
Corporation and Metsäliitto-Yhtymän Tehdasmittaus Oy were merged with Metsäliitto
Cooperative on 31 March 2006.
Business areas
Wood Supply (Metsäliitto and Thomesto)
Wood Supply's sales in January-September totalled EUR 1,086 million (1,033). Of
this, Wood Supply Finland represented EUR 859 million (796). Operating profit was
EUR 30 million (21), of which the Wood Supply Finland's share was EUR 21 million
(14). Wood Supply's operating profit includes capital gains of EUR 4 million from
real estate sales, entered in the second quarter.
Wood sales picked up in June, but purchasing did not achieve the budgeted
quantities, owing to slow business in the spring. In January-September, delivered
volumes to mills in Finland, including chips, amounted to 19.2 million cubic
metres (17.4). Roundwood announced for 14.3 million cubic metres of this (11.9).
Competition has been extremely tough all year. The prices for pine and spruce
logs were clearly increasing in early autumn, and pulpwood price has also gone up
a little.
Wood imports to Finland were 2.6 million cubic metres (2.9) of wood. Imports
remained slightly below the planned levels, resulting from a higher price level
in Russia and the Baltic countries, as well as changes in Russia's customs
regulations.
Wood Products Industry (Finnforest)
Wood Products Industry's sales stood at EUR 1,563 million (1,489), and operating
profit was EUR 61 million (17). In addition to boosting of efficiency and cost
savings, the positive development was supported by a high demand for sawn timber,
plywood and beam products, which allowed higher prices. The conditions are
favourable for price increases in the fourth quarter. The sales prices for birch
and softwood plywood have remained stable during the year.
Low-rise residential development has continued to increase in Scandinavia. The
construction market in Central and East Europe has also developed favourably,
especially in Germany. Therefore demand for Kerto and glulam products is also
high.
Pulp (Metsä-Botnia)
The sales of the Pulp Industry were EUR 971 million (659). Operating profit was
EUR 152 million, which is clearly above the corresponding period last year (26).
Operating profit improved as a result of higher sales prices and sales volumes
for pulp. The Finnish paper- and pulp mills were closed for more than six weeks
last year because of a labour conflict in the Finnish forest industry.
Both demand and supply for pulp have increased this year. Shutdowns of old pulp
mills in North America have taken some 1.5 million tonnes of pulp off the market.
At the same time, consumption of pulp has continued to grow, particularly in
Asia. The price of softwood pulp in Europe has risen from USD 600 in January to
USD 710 in September. The corresponding price increase for birch pulp was from
USD 590 to USD 660.
Paper and Board (M-real)
The Paper and Board Industry's January-September sales were EUR 4,186 million
(3,872). Operating profit excluding non-recurring items was EUR 31 million (-7).
Demand for M-real's main products was brisk during the third quarter, and
operating rates were high.
Of the non-recurring items, EUR 54 million were entered already in the second
quarter, and they consisted of a loss from assignment from the Pont Sainte
Maxence paper mill (35) and restructuring programmes at the Alizay (13),
Stockstadt (4) and Hallein (2) mills. An additional cost of two million euro,
relating to the divestment of the Pont Sainte Maxence mill, was entered in the
third quarter.
Operating profit after non-recurring items was EUR -25 million (63). The
operating profit in the comparison year was markedly elevated by a capital gain
of EUR 81 million from the divestment of an 8 per cent holding in Metsä-Botnia.
The price of uncoated fine paper was raised in Europe at the end of the third
quarter, but the efforts to raise the prices of coated papers have not succeeded
as planned. Cost pressures have generated a clear need to raise the prices of
coated magazine paper and folding boxboard, but average market prices will
probably remain at the current level for the rest of the year.
Financial income was EUR 19 million (21), income from associates was EUR 0
million (-3) and financial expenses were EUR 115 million (119). Net exchange
gains/losses booked in financial items were EUR 4 million (-26).
Result before tax was EUR -117 million (-65), earnings per share were EUR -0.40 (-
0.13) and return on capital employed was -0.2 per cent (2.3). Excluding non-
recurring items, the result was EUR -61 million (-131), earnings per share were
EUR -0.23 (-0.34) and return on equity was 1.4 per cent (0.2).
The equity ratio at the end of September was 34.3 per cent and gearing was 111
per cent (12/05: 36.6% and 95%, respectively).
Tissue and Cooking Papers (Metsä Tissue)
Tissue and Cooking Paper's sales were EUR 578 million (503). The growth in sales
resulted from higher sales volumes and improved average prices. Sales have
improved particularly in Germany and Poland. The Tento consolidation at the
beginning of May also increased sales.
Operating profit for January-September was EUR 14 million, which is EUR 6 million
below last year's figure (20). So far, raises in the selling prices have not
sufficed to compensate for the higher raw material, energy and transport costs.
During the summer and early autumn, the Tento mill upgraded a paper machine and
installed a new processing line. Production volumes have increased according to
the implementation plans, and the mill's profitability has improved. Maximum
production will be achieved in early 2007.
Events after the review period
On 18 October, M-real informed about commencing an extensive restructuring
programme. The programme includes plans on several mill closures and
divestments, and it will be completed by the end of year 2007. The total effect
of the restructuring programme is estimated to consist of an impairment charge of
EUR 200 million and non-recurring costs of about EUR 120 million.
In addition, M-real is aiming for cost improvements of EUR 100 million and
working capital efficiency improvements of EUR 100 million. It is also planning a
sale of a minimum stake of 8% in Metsä-Botnia to Metsäliitto.
On 18 October, Metsäliitto Group informed about rotating its top management.
Mikko Helander, CEO of Metsä Tissue, was appointed new CEO for M-real, and Hannu
Anttila, CEO of M-real, was appointed Executive Vice President, Strategy, for
Metsäliitto Group. On 24 October, Hannu Kottonen, head of M-real's Consumer
Packaging Business Area was appointed new CEO for Metsä Tissue.
On 12 October, World Bank's International Finance Corporation (IFC) published the
results of its Cumulative Impact Study (CIS) on the environmental and
socioeconomic effects of the Uruguay pulp mill. According to the study, Metsä-
Botnia's pulp mill will not cause significant adverse effects to the environment
or the commercial and industrial life in the region.
The report states that the mill will employ state-of-the-art technology/best
technology available (BAT) that would be approved also in Canada, the USA and
Europe. The project's positive socioeconomic and employment-enhancing effects in
the region are remarkable, and it is also of great significance for Uruguay's
development.
On 13 October 2006, M-real sold its entire 52.78 per cent ownership in Alakoski
Oy, a hydropower company located in Tampere.
Outlook
Demand for pine and spruce sawn timber remains high, but delivery volumes to
customers have been limited to some degree by a shortage of logs.
The market situation in the wood products industry has developed favourably since
last autumn, and the positive profit development is predicted to continue in the
final quarter of the year.
The favourable development of tissue and cooking paper sales is the result of
long-term strategic work focusing on our own brands. Operating profit has
developed as planned, and during the fourth quarter it will be possible for Metsä
Tissue to achieve last year's level.
The profitability of the pulp industry will probably not change from the third
quarter, and Metsä-Botnia's result for the full year will clearly improve from
last year.
The demand for paper and board products is estimated to continue at a high level
for the rest of the 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. As a result of the recently announced restructuring programme, M-real
will enter an inpairment charge of about EUR 200 million in the fourth quarter of
2006.
Provided that there will be no significant changes in the operating environment,
Metsäliitto Group is aiming for a clearly positive result before tax and non-
recurring items this year.
Espoo, 25 October 2006
Metsäliitto Group
Board of Directors
For further information, please contact:
Ilkka Pitkänen, Group CFO, Metsäliitto Group, tel. +358 10 469 4260
Lauri Peltola, Group CCO, Metsäliitto Group, tel. +358 50 570 5606
METSÄLIITTO GROUP
Income statement 2006 2005 2005
(EUR mill.) 1-9 1-9 Change 1-12
Sales 6919 6378 541 8643
Other operating income 129 121 8 148
Materials and services -4288 -3985 -303 -5377
Employee costs -1081 -1052 -29 -1424
Other operating expenses -1164 -1008 -156 -1381
Depreciation and impairment
losses -376 -391 15 -559
Operating profit 139 63 76 50
Share of results in
associates 4 0 4 4
Net exchange gains / losses 6 -23 29 -27
Other financial income and
expenses -151 -158 7 -187
Result before tax -2 -118 116 -159
Income taxes -46 8 -54 15
Result for the period -48 -110 62 -144
Attributable to
Owners of parent company 27 -37 64 -50
Minority interest -75 -73 -2 -94
-48 -110 62 -144
Balance sheet 2006 2005 2005
(EUR mill.) 30.9. 30.9. 31.12.
ASSETS
Non-current assets
Intangible assets 859 820 818
Tangible assets 4208 4248 4256
Biological assets 51 57 51
Financial assets
Interest bearing 54 67 68
Deferred tax receivables 82 109 96
Other non-interest bearing 208 190 201
5463 5491 5490
Current assets
Inventories 1140 1233 1293
Receivables
Interest bearing 7 9 5
Non-interest bearing 1671 1666 1706
Cash and cash equivalents 153 212 194
2972 3120 3199
Assets classified as held for 376
sale
TOTAL 8811 8611 8689
MEMBERS' FUNDS AND LIABILITIES
Members' funds 1343 1319 1328
Minority interest 1269 1329 1317
Total members' funds 2612 2648 2645
Non-current liabilities
Deferred tax liabilities 429 464 439
Retirement benefit obligations 249 270 270
Provisions 73 67 74
Interest bearing 3256 2831 2915
Other non-interest bearing 75 113 90
4082 3745 3788
Current liabilities
Interest bearing 670 932 983
Non-interest bearing 1217 1286 1273
1887 2218 2256
Total liabilities 5970 5963 6044
Liabilities classified as held 229
for sale
TOTAL 8811 8611 8689
Change in members' funds
Re-
(EUR mill.) Mem tained Minority
bers' Re- earn- interest
capital serves ings Total
Members' funds Jan 1, 2005
505 62 783 1428 2778
Translation differences 4 4
Dividends paid -34 -34
Increase in members'
capital 32 32
Increase in reserves 2 2
Transfers 9 -9 0
Other changes 0 0
Minority interest -25 -25
Result for the period -37 -73 -110
Members' funds Sept. 30, 537 74 707 1329 2648
2005
Members' funds Jan 1, 2006
558 74 696 1317 2645
Translation differences -5 -5
Dividends paid -37 -37
Increase in members'
capital 20 7 27
Increase in reserves 0
Transfers 1 -1 0
Other changes 2 2
Minority interest 27 27
Result for the period 27 -75 -48
Members' funds Sept. 30, 578 82 682 1269 2612
2006
Cash flow statement 2006 2005 2005
(EUR mill.) 1-9 1-9 1-12
Cash flow from operations
Result for the period -48 -110 -144
Adjustments total 520 582 699
Change in working capital 48 -51 -131
Cash generated from operations 520 421 424
Finance costs, net -164 -154 -237
Income taxes paid -39 -48 -52
Net cash from operations 317 219 135
Cash flow from investments
Acquisitions -139 -46 -68
Purchases of assets -414 -438 -538
Sold assets and others 54 203 185
Net cash from investments -499 -281 -420
Cash flow from financing
Increase in equity 97 7 62
Change in long-term loans and
other financial items 117 73 225
Dividends paid -62 -58 -58
Net cash flow from financing 152 22 228
Change in cash and cash equivalents
-30 -40 -58
Cash at beginning of period 194 252 252
Change in cash and cash
equivalents -30 -40 -58
Cash in assets classified as
held for sale -11
Cash at end of period 153 212 194
BUSINESS SEGMENTS
Consumer Packaging I-III I-III III III I-IV
/06 /05 /06 /05 /05
Sales 730 633 236 196 864
EBITDA 122 93 44 36 134
Depreciation & impairment -68 -67 -23 -21 -89
losses
Operating profit 54 25 21 15 45
Papers I-III I-III III III I-IV
/06 /05 /06 /05 /05
Sales 2340 2214 767 735 2988
EBITDA 151 163 70 77 224
Depreciation & impairment -191 -191 -63 -63 -274
losses
Operating profit -40 -27 7 13 -50
MAP Merchant Group I-III I-III III III I-IV
/06 /05 /06 /05 /05
Sales 1061 1033 342 341 1390
EBITDA 22 23 5 6 25
Depreciation & impairment
losses -5 -5 -2 -2 -7
Operating profit 17 18 3 4 18
Wood Products I-III I-III III III I-IV
/06 /05 /06 /05 /05
Sales 1563 1489 499 468 1986
EBITDA 113 70 38 20 111
Depreciation & impairment
losses -52 -53 -17 -17 -85
Operating profit 61 17 21 3 26
EBITDA = Result before depreciation and impairment losses
Others I-III I-III III III I-IV
/06 /05 /06 /05 /05
Operating profit 46 30 16 9 10
of which
Wood Supply in Finland 21 14 4 1 25
Internat. Wood Supply 9 8 2 6 8
Tissue and Cooking Papers 14 20 7 11 24
Others and Group 2 -12 3 -9 -47
eliminations
M-real includes 39% of the Pulp Industry's (Metsä-Botnia) operating profit and
Metsäliitto a further 14% in the business segments Consumer Packaging and Papers.
Production
1 000 units I-III I-III III III I-IV
/06 /05 /06 /05 /05
Paper, t 3119 2937 1023 1036 3985
Paperboard, t 842 713 273 292 985
Sawn goods, m3 3008 2976 827 813 4136
Processed timber, m3 911 889 327 276 1181
EW products, m3 707 751 220 269 990
Pulp & CTMP, t (M-real) 1305 1112 443 379 1533
Pulp, t (Metsä-Botnia) 1866 1530 622 600 2177
Quarterly data 2006 2006 2006 2005 2005 2005 2005
(EUR mill.) III II I IV III II I
Sales
Consumer Packaging 236 237 257 231 196 199 238
Papers 767 772 801 775 735 732 747
MAP Merchant Group 342 354 365 357 341 351 341
Wood Products 499 555 510 497 468 553 468
Others & internal
sales 402 396 425 405 317 299 393
Group sales 2246 2314 2358 2265 2057 2134 2187
Operating profit
Consumer Packaging 21 5 27 20 15 -17 27
Papers 7 -64 17 -22 13 -51 10
MAP Merchant Group 3 7 7 0 5 7 6
Wood Products 21 26 14 9 3 15 -1
Others 16 14 17 -20 9 -11 32
Group operating profit 68 -11 82 -13 45 -56 74
- % of sales 3.0 -0.5 3.5 -0.6 2.2 -2.6 3.4
Share of results
in associates 2 2 0 4 1 -2 0
Net exchange gains / 4 -6 8 -4 0 -12 -11
losses
Other fin. income & -60 -45 -45 -29 -33 -79 -45
expenses
Result before tax 14 -60 45 -42 13 -149 18
Income taxes -21 -1 -24 8 -5 20 -7
Result for the period -7 -61 21 -34 8 -129 11
