METSÄLIITTO GROUP INTERIM REPORT JANUARY - MARCH 2006
METSÄLIITTO GROUP STOCK EXCHANGE RELEASE
27.4.2006 1 PM
METSÄLIITTO GROUP INTERIM REPORT JANUARY - MARCH 2006
Metsäliitto Group's operating profit improved by 11 per cent in the first quarter
Performance in the first quarter of 2006
. Sales EUR 2 358 million (EUR 2 187 million 1-3/2005). Sales increased by 8
per cent.
. Operating profit EUR 82 million (EUR 74 million 1-3/2005). Operating profit
improved by 11 per cent on the comparison period.
. Profit before taxes EUR 45 million (EUR 18 million 1-3/2005).
Events during the first quarter
. A review of the strategic business structure of the Metsäliitto Group's
Paper and Paperboards Industry (M-real) was initiated with the aim of
surveying the opportunities and potential benefits achievable through
involvement in structural change within the European paper industry.
. Pulp Industry's (Metsä-Botnia) investment in Uruguay is proceeding
according to plan. Construction work was suspended for 10 days in April.
. Wood Products Industry (Finnforest Corporation) and Metsäliitto-Yhtymän
Tehdasmittaus Oy merged with Metsäliitto Cooperative on 31 March 2006.
. Tissue and Cooking Papers Industry (Metsä Tissue) expanded its market share
by acquiring the Slovakian company Tento a.s., one of the leading
manufacturers of tissue paper in central Eastern Europe. The acquisition
was officially concluded in April.
"I am pleased to report that we are now seeing the first signs of an upturn in
the Metsäliitto Group's earnings development. However, I must point out that the
present level is not sufficient by any means. We must continue to improve the
efficiency and profitability of our operations in order to achieve a level of
earnings that will guarantee our desired competitive position within the forest
industry."
Kari Jordan, President and CEO, Metsäliitto Group
Metsäliitto Group
INCOME STATEMENT 2006 2005 2005
(EUR mill.) 1-3 1-3 1-12
Sales 2 358 2 187 8 643
Other operating income 46 43 148
Operating expenses -2 192 -2 027 -8 182
Depreciation and impairment -130 -129 -559
losses
Operating profit 82 74 50
Share of results in associates 0 0 4
Net exchange gains / losses 8 -11 -27
Other financial income & -45 -45 -187
expenses
Result before tax 45 18 -159
Income tax -24 -7 15
Result for the period 21 11 -144
KEY RATIOS 2006 2005 2005
1-3 1-3 1-12
Return on capital employed, % 5.4 4.9 1.2
Return on equity, % 3.1 1.5 -5.3
Equity ratio, % 30.3 32.1 30.5
Net gearing ratio, % 143 123 137
Interest-bearing net liabilities, MEUR 3 778 3 440 3 631
Capital expenditure, MEUR 168 171 692
Personnel, average 28 890 29 050 29 007
Parent company and subsidiaries
Income statement 1-3/2006 Metsä- Finn- Metsä *)
(EUR mill.) liitto forest Tissue M-real Metsä-
Botnia
Sales 323 501 181 1 441 316
Other operating income 2 3 2 36 6
Operating expenses -314 -473 -166 -1 349 -248
Depreciation and impairment -1 -17 -12 -93 -26
losses
Operating profit 10 14 5 35 48
Share of result in associates 0 0 0 -1 0
Net exchange gains / losses 0 0 0 8 3
Other fin. income & expenses 20 -4 -7 -26 -1
Result before tax 30 10 -2 16 50
*) 100%
The interim report is unaudited
METSÄLIITTO GROUP
INTERIM REPORT JANUARY - MARCH 2006
Sales and earnings
The Metsäliitto Group's sales in the first quarter of 2006 increased by 8 per
cent on the previous year and amounted to EUR 2 358 million (2 187 in Q1 2005).
The operating profit was EUR 82 million (74). The figure for the comparison year
includes EUR +9 million of non-recurring items.
The operating profit improvement was particularly attributable to improved
profitability of the Wood Products Industry due to better market conditions and
the completion of efficiency and cost savings measures. The Group's profitability
was also improved by increased delivery volumes of coated fine paper and board,
as well as price increases in coated magazine papers.
Net financial expenses were 1.6 per cent of sales (2.5). Financial income was EUR
7 million (6), shares in associated companies' profits totalled EUR 0 million (0)
and financial expenses came to EUR 52 million (51). Exchange rate differences in
financing totalled EUR 8 million(-11). On average, the dollar strengthened by 8.3
per cent and the sterling by 1.0 per cent compared with the first quarter of
2005.
Profit before taxes was EUR 45 million (18). Taxes, including the change in the
deferred tax liability, totalled EUR 24 million (7). Profit for the period under
review amounted to EUR 21 million (11), of which EUR 17 million (14) was
attributable to the owners of the parent cooperative and EUR 4 million (-3) to
the minority interest.
The Metsäliitto Group's return on capital employed was 5.4 per cent (4.9), while
return on equity was 3.1 per cent (1.5).
Balance sheet and financing
The Group's total liquidity was EUR 1.9 billion at the end of March (12/05: 1.6).
Of this, EUR 0.2 billion (0.2) was in 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 around EUR 0.7
billion in non-committed domestic and foreign commercial paper programmes and
forward credits.
In March, the Group's equity ratio was 30.3 per cent and gearing 143 per cent
(12/05: 30.5% and 137%). Interest-bearing net liabilities stood at EUR 3 778
million (12/05: 3 631).
Members' capital in Metsäliitto Cooperative increased by EUR million during the
first quarter. Actual members' capital increased by EUR 1 million, additional
members' capital A by EUR 5 million and additional members' capital B by EUR 2
million.
In April, the Representative Council of Metsäliitto Cooperative decided that
interest of 6.5 per cent would be paid on statutory members' capital (6.5%),
interest of 5.5 per cent on additional members' capital A (5.5%) and 4.0 per cent
on additional members' capital B (4.0%). The total interest payout for 2005
amounts to EUR 37.4 million (34.2).
Metsäliitto Cooperative signed a binding syndicated credit facility agreement of
EUR 560 million in March. The loan is associated with the merger between
Finnforest Corporation and Metsäliitto Cooperative. The loan period is five
years.
Personnel
During the period under review, the Metsäliitto Group employed 28 981 people on
average 1-3/05: 29 079). The number at the end of the period was 28 890 (31
December 2005: 29 050). Metsäliitto Cooperative had 131 049 members at the end of
March (31 December 2005: 131 175).
Investments, acquisitions and divestments
Metsäliitto Group's capital expenditure into fixed assets and corporate
acquisitions from January to March totalled EUR 168 million (171).
In February, Metsä Tissue announced that it was acquiring the Slovakian company
Tento a.s., which is a leading supplier of tissue paper in central Eastern
Europe. Its key products are toilet paper, household towels and handkerchiefs.
The sale transaction was realised in April.
Production at Metsä-Botnia's sawmill built in Russia started smoothly. The
sawmill has an annual capacity of 200 000 cubic metres and employed 132 people at
the end of March. The cost of the investment project was about EUR 55 million.
An extension to Finnforest's Kerto mill at Punkaharju was completed early in the
year. The unit's annual production capacity will increase by 60 000 cubic metres
to 130 000 cubic metres.
In March, Finnforest sold its chipboard business (Tiwi) located at Keuruu to
Puhos Board Oy. Finnforest became a minority shareholder in Puhos Board with a
holding of 13 per cent.
Modernisation of M-real's board machine at Simpele will be completed gradually
during the spring. The work will raise the mill's annual capacity by 45 000
tonnes to 215 000 tonnes.
Uruguay pulp mill project
Construction work for the pulp mill progressed normally during the first quarter.
Foundation work for the buildings has been completed and construction above
ground has started. The construction site employed 1 760 people at the end of
March.
In April, Metsä-Botnia suspended the construction work for ten days with the
intention of promoting mutual understanding between Uruguay and Argentina. Metsä-
Botnia has announced its desire to assist in solving the dispute to its best
ability and, since the start of the project, has openly disclosed information
regarding the mill's impact on the region.
The dispute between Uruguay and Argentina over the construction of Metsä-Botnia's
pulp mill continues.
Organisation
A plan to merge Finnforest Corporation with Metsäliitto Cooperative was approved
in late September 2005. The merger was executed on 31 March 2006. At the same
time, Metsäliitto-Yhtymän Tehdasmittaus Oy merged with Metsäliitto Cooperative.
Business areas
Wood Supply (Metsäliitto Cooperative)
Metsäliitto Cooperative's sales for January-March were EUR 323 million (323).
Deliveries to mills in Finland, including wood chips, totalled approximately 7.1
million cubic metres (7.1), 5.4 million cubic metres of which was roundwood
(5.0).
Compared to previous years, the wood trade in Finland started up slowly but
gained speed in March and reached a level close to the previous year. Metsäliitto
fell slightly short of its procurement target even though its market share was
close to the normal level. The price level of softwood logs was increasing, and
the price development of other wood species was stable.
The operating profit was EUR 10 million (14). The operating profit does not
include any significant non-recurring items (1-3/05: EUR +4 million). The profit
after financial items was EUR 30 million (33). The financial items include
dividend income for of EUR 27 million (26). The financial expenses for the
comparison year include a write-down of approximately EUR 6 million associated
with the Forestia arrangement.
Metsäliitto Cooperative's return on capital employed was 4.9 per cent (6.5%). At
the end of March, the equity ratio was 51.1 per cent and gearing was 23 per cent
(31 December 2005: 56.0% and 19%).
Metsäliitto Cooperative's international wood supply produced sales of EUR 119
million (114) and an operating profit of EUR 2 million (1). Some 1.0 million
(0.9)cubic metres of wood were imported into Finland.
In Russia, log and wood chip deliveries to the Svir Timber sawmill progressed
according to plan. The supply of soft pulpwood in Sweden remains good due to the
storm damage in 2005 but in the Baltic countries, supply has fallen. Strong
demand for firewood in Central Europe tightens competition and increases the
price of pulpwood.
Metsäliitto Cooperative buys all species of wood. Pine and spruce logs are in
greatest demand, and purchasing focuses on terminal fellings.
Wood Products Industry
The wood products industry's sales were EUR 510 million (468) and the operating
profit came to EUR 14 million (-1). Profit before taxes was EUR 10 million (-11).
The positive development was affected by good demand for solid wood, plywood and
beam products, as well as realised cost savings. Furthermore, the merger between
Finnforest and Metsäliitto Cooperative has resulted in synergy benefits that have
already been realised in the first quarter.
Construction and the demand for wood products have continued at a good level. On
the other hand, DIY sales in Great Britain and France have not achieved the
targets due to weakened demand and intense competition.
The wood products industry's outlook for the second quarter is mostly positive.
The risks are mainly associated with production cuts due to shortage of logs in
Finland.
Pulp (Metsä-Botnia)
Metsä-Botnia's sales amounted to EUR 316 million (255). The pulp market clearly
improved during the first quarter of 2006. Producers' pulp stocks decreased while
customers' pulp stocks in Europe remained low.
The operating profit was EUR 48 million (24). The operating profit improvement
was a result of increased sales volumes and the fact that foreign exchange rates
developed favourably for Metsä-Botnia.
The foreign currency-denominated market prices of softwood pulp were 4 per cent
lower on average compared to the first quarter of the previous year. The average
prices of hardwood pulp increased by 8 per cent. In March, the price of softwood
pulp was USD 630/tonne and the price of hardwood pulp was USD 620/tonne in
Europe.
From January to March, profit before taxes was EUR 50 million (25) and the return
on capital employed was 14.9 per cent (8.4). At the end of March, the equity
ratio was 68.5 per cent and gearing was 13 per cent (31 December 2005: 71.6% and
6%).
The price of pulp is expected to increase during the spring. The new capacity in
Latin America will not affect the market before early autumn.
Papers and Paperboards (M-real)
M-real's sales for January-March were EUR 1 441 million (1 344). During the first
quarter the demand for M-real's main products was good, and operating rates were
high. There were no significant changes in the European market prices of paper in
the first quarter. Towards the end of the period, the price of office paper
slightly increased. The market prices of folding boxboard and liners remained
stable.
M-real's operating profit was EUR 35 million (115). Operating profit excluding
non-recurring items was EUR 35 million (30). The operating profit for the
comparison year included a total of EUR 85 million of non-recurring items, the
most significant item being a sales gain of EUR 81 million on an 8 per cent
holding in Metsä-Botnia. M-real's operating profit for January-March includes 39
per cent of Metsä-Botnia's operating profit (1-3/05: 47%).
Profitability in the first quarter was improved by increased delivery volumes of
coated fine paper and board, price increases in coated magazine papers, as well
as strengthening of the US dollar. On the other hand, profitability was affected
by increased costs of fibres and energy, as well as price decreases in graphic
uncoated fine papers.
Financial income and expenses amounted to EUR -18 million (-39) and the shares in
associated companies' profits totalled EUR -1 million (1). Exchange rate
differences booked in financial items totalled EUR 8 million (-11).
Profit before taxes was EUR 16 million (77), earnings per share were EUR 0.01
(0.23) and the return on capital employed was 3.4 per cent (10.1). Excluding non-
recurring items, the result was EUR 16 million (-8), earnings per share were EUR
0.01 (a loss of -0.03) and the return on capital employed was 3.4 per cent (3.0).
At the end of March, M-real's equity ratio was 36.2 per cent and gearing was 100
per cent (31 December 2005: 36.6% and 95%).
M-real's Annual General Meeting decided to distribute a dividend of EUR 0.12 per
share (0.12), totalling EUR 39.4 million (39.4). Furthermore, the Annual General
Meeting authorised M-real's Board of Directors to decide on increasing the share
capital by a maximum of EUR 99.2 million. The authorisation includes the option
of deviating from a shareholder's pre-emptive right to new subscriptions provided
that the deviation is called for by corporate restructuring measures or other
development of the company's business or there is another weighty financial
reason
M-real issued a bond of EUR 500 million in March. The bond will be used for the
repayment of existing loans, and the loan period is seven years.
Standard & Poor's Ratings Services downgraded M-real's BB credit rating to BB-
and updated the outlook from stable to negative. Moody's Investors Services
downgraded M-real's Ba2 credit rating to Ba3. The rating outlook remained
negative.
The demand for the main products is expected to remain mostly stable during the
second quarter. The average prices of all the main paper grades are expected to
be slightly higher than in the previous quarter. The price of folding boxboard is
expected to remain stable in the near future.
Tissue and Cooking Papers (Metsä Tissue)
Metsä Tissue's sales amounted to EUR 181 million (171). The increase in sales is
attributable to increased sales volumes and improved average prices. Sales
development has been particularly positive in Germany and Poland.
The operating profit was EUR 5 million (9). The decrease on the previous year's
level is due to increased prices of energy, pulp and petroleum-based raw
materials. Higher sales volumes and prices have not yet been sufficient to cover
the rise in raw material prices.
Metsä Tissue's result before taxes was EUR -2 million (5). The decrease in
earnings is due to increased raw material expenses mentioned in the above, as
well as exchange rate differences in financing.
Inspections by the competition authority
On 25 May 2004, representatives of Finland's competition authority conducted
inspections, without notice, at the premises of several forest industry
companies, including those of Metsäliitto Cooperative and Stora Enso. The
inspections were in response to information supplied to the Finnish Competition
Authority on 3 May 2004 by UPM-Kymmene.
The purpose of the inspections was to determine whether the forest industry
companies in question had exchanged confidential information concerning the
purchasing prices of wood raw material, and had discussed ways of limiting
competition between these companies over prices on the market for wood raw
material.
The reports of inspections were provided to the companies for comments in early
April 2006. The deadline for rejoinders is mid-May.
Outlook
Metsäliitto Group's first-quarter performance was in line with plans. Due to
seasonal reasons, the earnings for the second quarter will probably fall short of
the first quarter's level. In 2005, the Group's second quarter showed a loss of
EUR 149 million due to the labour conflict in the forest industry.
The continuing increase in the prices of energy, particularly natural gas and
electrical power, imposes substantial increases on production costs. Furthermore,
the high market price of crude oil will raise transport costs and keep petroleum-
based raw materials expensive.
With regard to pine and spruce logs, the supply has not matched the demand this
year. The level of softwood log reserves is low, and reductions in sawmilling
have to be made before the summer holidays due to a shortage of logs. If
prolonged, production restrictions in sawmilling will result in a downturn in
earnings.
The implementation of measures aimed at improving cost-effectiveness and
profitability is a priority for Metsäliitto. Unless the operating environment
within the forest industry is significantly altered, Metsäliitto Group is aiming
for clear profits in 2006.
Espoo, 27 April 2006
BOARD OF DIRECTORS
Additional information:
Mr. Lauri Peltola, Group CCO, Metsäliitto, tel. +358 50570 5606
Mr. Ilkka Pitkänen, Group CFO, Metsäliitto, tel. +358 1046 94260
METSÄLIITTO GROUP
Income statement 2006 2005 2005
(EUR mill.) 1-3 1-3 Change 1-12
Sales 2 358 2 187 171 8 643
Other operating income 46 43 3 148
Materials and services -1 474 -1 336 -138 -5 377
Employee costs -361 -356 -5 -1 424
Other operating expenses -357 -335 -22 -1 381
Depreciation and impairment losses -130 -129 -1 -559
Operating profit 82 74 8 50
Share of results in associates 0 0 0 4
Net exchange gains / losses 8 -11 19 -27
Other financial income and expenses -45 -45 0 -187
Result before tax 45 18 27 -159
Income taxes -24 -7 -17 15
Result for the period 21 11 10 -144
Attributable to
Owners of parent company 17 14 3 -50
Minority interest 4 -3 7 -94
21 11 10 -144
2006 2005 2005
Balance sheet 31.3. 31.3. 31.12.
ASSETS
Non-current assets
Intangible assets 849 812 818
Tangible assets 4 242 4 239 4 256
Biological assets 65 46 51
Financial assets
Interest bearing 46 71 68
Deferred tax receivables 86 103 96
Other non-interest bearing 230 207 201
5 518 5 478 5 490
Current assets
Inventories 1 310 1 301 1 293
Receivables
Interest bearing 9 25 5
Non-interest bearing 1 749 1 691 1 706
Cash and cash equivalents 190 200 194
3 259 3 217 3 199
TOTAL 8 777 8 695 8 689
MEMBERS' FUNDS AND LIABILITIES
Members' funds 1 354 1 387 1 328
Minority interest 1 298 1 400 1 317
Total members' funds 2 652 2 787 2 645
Non-current liabilities
Deferred tax liabilities 430 478 439
Retirement benefit obligations 269 271 270
Provisions 70 48 74
Interest bearing 3 267 2 880 2 915
Other non-interest bearing 85 110 90
4 121 3 787 3 788
Current liabilities
Interest bearing 757 855 983
Non-interest bearing 1 247 1 266 1 273
2 004 2 121 2 256
Total liabilities 6 125 5 908 6 044
TOTAL 8 777 8 695 8 689
Change in members' funds
Members' Retained Minority
capital Reserves earnings interest Total
Members' funds 1.1.2005 505 62 783 1 428 2 778
Translation differences -9 -9
Increase in members' capital 16 17
Effects of financial 14 14
instruments
Minority interest -27 -27
Result for the period 14 14
Members' funds 31.3.2005 521 76 788 1 401 2 787
Members' funds 1.1.2006 558 74 696 1 317 2 646
Translation differences -4 -4
Increase in members' capital 8 8
Effects of financial 4 4
instruments
Transfers 1 1
Minority interest -19 -19
Result for the period 17 17
Members' funds 31.3.2006 566 79 709 1298 2 652
2006 2005 2005
Cash flow statement 1-3 1-3 1-12
Cash flow from operations
Result for the period 20 11 -144
Adjustments total 168 191 699
Change in working capital -120 -140 -131
Cash generated from operations 68 62 424
Finance costs, net -29 -56 -237
Income taxes paid -24 -46 -52
Net cash from operations 15 -40 135
Cash flow from investments
Acquisitions -50 -46 -68
Purchases of assets -118 -125 -538
Sold assets and others 18 189 185
Net cash from investments -150 18 -420
Cash flow from financing
Change in loans and
other financial items 155 -6 286
Dividends paid -24 -24 -58
Net cash flow from financing 131 -30 228
Change in cash and cash -4 -53 -58
equivalents
Cash at beginning of period 194 252 252
Change in cash and cash -4 -53 -58
equivalents
Cash at end of period 190 199 194
BUSINESS SEGMENTS
Consumer Packaging I/06 I/05 I-IV/05
Sales 257 238 864
EBITDA 50 50 134
Depreciation & impairment -23 -23 -89
losses
Operating profit 27 27 45
Papers I/06 I/05 I-IV/05
Sales 801 747 2 988
EBITDA 81 74 224
Depreciation & impairment -64 -64 -274
losses
Operating profit 17 10 -50
MAP Merchant Group I/06 I/05 I-IV/05
Sales 365 341 1 390
EBITDA 9 8 25
Depreciation & impairment -2 -2 -7
losses
Operating profit 7 6 18
Wood Products I/06 I/05 I-IV/05
Sales 510 468 1 986
EBITDA 32 17 111
Depreciation & impairment -18 -18 -85
losses
Operating profit 14 -1 26
EBITDA = Result before depreciation and impairment losses
Others I/06 I/05 I-IV/05
Operating profit 17 32 10
of which
Wood supply in Finland 10 14 25
Internat. wood supply 2 1 8
Tissue and Cooking papers 5 9 24
Others and Group 0 8 -47
eliminations
Production
1 000 units I/06 I/05 I-IV/05
Paper, t 1 079 1 026 3 985
Paperboard, t 299 293 985
Sawn goods, m3 1 113 1 053 4 136
Processed timber, m3 302 299 1 181
EW products, m3 247 226 990
Pulp & CTMP, t (M-real) 440 383 1 533
Pulp, t (Metsä-Botnia) 644 653 2 177
Quarterly data 2006 2005 2005 2005 2005
I IV III II I
Sales
Consumer Packaging 257 231 196 199 238
Papers 801 775 735 732 747
MAP Merchant Group 365 357 341 351 341
Wood Products 510 497 468 553 468
Others & internal sales 425 405 317 299 393
Group sales 2 358 2 265 2 057 2 134 2 187
Operating profit
Consumer Packaging 27 20 15 -17 27
Papers 17 -22 13 -51 10
MAP Merchant Group 7 0 5 7 6
Wood Products 14 9 3 15 -1
Others 17 -20 9 -11 32
Group operating profit 82 -13 45 -56 74
- % of sales 3.5 -0.6 2.2 -2.6 3.4
Share of results in associates 0 4 1 -2 0
Net exchange gains / losses 8 -4 0 -12 -11
Other fin. income & expenses -45 -29 -33 -79 -45
Result before tax 45 -42 13 -149 18
Income taxes -24 8 -5 20 -7
Result for the period 21 -34 8 -129 11
Metsäliitto is the tenth biggest forest industry group in the world. Its five
business areas include wood supply, wood products industry, pulp production and
producing of paper and paperboard as well as tissue paper. Its sales are about
8.6 billion euro. With almost 30 000 employees, the Metsäliitto Group parent
company Metsäliitto Cooperative and subsidiaries Metsä-Botnia, M-real and Metsä
Tissue have own presence in nearly 30 countries.
