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Metsäliitto Group Interim Report January-March 2007
 

24/04/2007
Metsäliitto Group's operating profit excluding non-recurring items EUR 97 million in the first quarter
 
Non-recurring items totalled EUR -62 million
 
 
Result for the first quarter of 2007
 
  • Sales EUR 2,244 million (Q1/06: EUR 2,358 million). Sales were 5 per cent down on the previous year because of divested and discontinued businesses. Comparable sales grew by 5 per cent.
  • Operating profit excluding non-recurring items EUR 97 million (Q1/06: EUR 82 million). Operating profit after non-recurring items EUR 35 million (Q1/06: EUR 82 million).
  • Result before tax and excluding non-recurring items was EUR 32 million (Q1/06: EUR 45 million).
 
Events during the first quarter of the year
 
  • M-real's Sittingbourne fine paper mill in the UK was closed down in January. Fine paper machines 6 and 7 at Gohrsmühle in Germany were closed down in February. It was decided to close the Wifsta paper mill in Sweden by the end of June.
  • M-real sold 9 per cent of its Metsä-Botnia shares to Metsäliitto Cooperative for EUR 240 million.
  • Metsäliitto Cooperative decided to reform and streamline the organisation of Wood Supply in Finland. The existing area organisation will be abolished, while supply districts will be reinforced. The new organisation will be implemented as of 1 January 2008.
  • M-real launched a restructuring programme aiming at an approximately EUR 40 million improvement in results from the operations in Finland, as of the beginning of 2009. Closures of entire production plants are not planned, but the number of personnel is estimated to drop by some 600 people, in addition to the programmes currently in progress.
 
 
"The first quarter showed that Metsäliitto Group is heading in the right direction with its profitability improvement measures. Meanwhile, however, the challenges from the operating environment are increasing. In particular, energy prices and limited availability of wood raw material will burden our productivity. The rapid changes in the forest industry's operating environment can create the impression of getting nowhere, despite impressive achievements and hard work."
 
Kari Jordan, President & CEO, Metsäliitto Group
 
 
Metsäliitto is the eigth largest forest industry group in the world with sales of EUR 8.5 billion and 25,000 employees. Its five business areas include wood supply, wood products industry, pulp, paper and board, and tissue and cooking papers. The Group's parent company Metsäliitto Cooperative and subsidiaries Metsä-Botnia, M-real and Metsä Tissue operate in 30 countries.
 
 
Metsäliitto Group
Income statement
(EUR mill.)
2007
1-3
2006
1-3
2006
1-12
Sales
2 244
2 358
9 271
  Other operating income
24
46
175
  Operating expenses
-2 101
-2 192
-8 761
  Depreciation and impairment losses
-132
-130
-707
Operating profit
35
82
-22
  Share of results in associates
2
0
6
  Net exchange gains / losses
-5
8
6
  Other financial income & expenses
-62
-45
-212
Result before tax
-30
45
-222
  Income tax
-19
-24
-37
Result for the period
-49
20
-259
 
 
 
 
Metsäliitto Group
Key figures
2007
1-3
2006
1-3
2006
1-12
Return on capital employed, %
2.8
5.4
0.1
   - " -, excluding non-recurring items
6.7
5.4
4.4
Return on equity, %
-8.5
3.1
-10.3
   - " -, excluding non-recurring items
2.2
3.1
0.7
Equity ratio, %
27.6
30.3
28.0
Net gearing ratio, %
157
143
150
Interest-bearing net liabilities, EUR mill.
3 600
3 778
3 527
Capital expenditure, EUR mill.
96
168
744
Personnel at end of period
24 296
28 890
25 007
 
 
 
Business areas
Sales and Operating profit
1-3/2007
(EUR mill.)
 
Wood
Supply   
Wood
Products
Industry
 
Pulp *)
Industry
Paper and Board
Industry
Tissue and Cooking Papers
Sales
408
354
357
1 432
213
 Other operating income
2
2
4
155
2
 Operating expenses
-398
-317
-271
-1 386
-196
 Depreciation & impairment losses
-2
-12
-26
-97
-13
Operating profit
10
27
64
104
6
 
*) Represents 100%. The Metsäliitto Group consolidates 53% of the Pulp Industry's figures.
 
 
                                                                                      
The Interim Report is unaudited
 
 
METSÄLIITTO GROUP
 
INTERIM REPORT 1 January - 31 March 2007                      
 
 
Sales and result
As a result of divestments and discontinued businesses, the Metsäliitto Group's sales fell by 5 per cent from the corresponding period last year, amounting to EUR 2,244 million (2,358). Comparable sales grew by 5 per cent.
 
Operating profit excluding non-recurring items was EUR 97 million (82). Non-recurring items totalled EUR -62 million (0), of which EUR 43 million are cost provisions for mill closures at Sittingbourne and Wifsta. EUR 16 million was entered as impairment losses due to valuation of assets held for sale at expected selling price.
 
Operating profit after non-recurring items was EUR 35 million (82).
 
The Metsäliitto Group's net financial expenses were 3.0 per cent (1.6) of sales in January-March. Financial income was EUR 6 million (7), income from associates was EUR 2 million (0) and financial expenses were EUR 68 million (51). Net exchange gains/losses were EUR
-5 million (+8).
 
Before non-recurring items, the result before tax was EUR 32 million (45), and after non-recurring items EUR -30 million (+45). Taxes, including the change in deferred tax liability, were EUR 19 million (24).
 
The result for the period was EUR -49 million (+20), EUR +3 million (+17) of which was attributable to the owners of the parent cooperative and EUR -52 million (+4) to the minority interest.
 
The Group's return on capital employed was 2.8 per cent (5.4) and the return on equity was
-8.5 per cent (3.1). Excluding non-recurring items, the Group's return on capital employed was 6.7 per cent (5.4) and return on equity was 2.2 per cent (3.1).
 
Balance sheet and financing
Metsäliitto Group's total liquidity was EUR 1.5 billion at the end of March (31 December 2006: 2.0). Of this, EUR 0.2 billion (0.2) was in terms of liquid assets and investments, and EUR 1.3 billion (1.8) in binding credit-facility agreements not included in the balance sheet. In addition, the Group can satisfy short-term financial needs with non-binding commercial paper schemes in Finland and abroad as well as credit lines amounting to EUR 0.8 billion.
 
The Group's equity ratio at the end of March was 27.6 per cent and gearing ratio was 157 per cent (31 December 2006: 28.0% and 150%, respectively). Interest-bearing net liabilities increased by EUR 73 million in the first quarter of the year and stood at EUR 3,600 million at the end of March (31 December 2006: 3,527).
 
Standard & Poor's Ratings Services lowered M-real's long-term credit rating from B+ to B in March. The outlook for the rating remained negative. Correspondingly, Moody's Investors Services lowered M-real's credit rating from B2 to B3. The outlook for the rating shifted from negative to stable. The lowered ratings have an effect of about EUR 5 million per year on   M-real's current financing costs.
 
Metsäliitto Cooperative's members' capital grew by EUR 9.8 million in January-March. The actual members' capital grew by EUR 1.0 million, the additional members' capital A by EUR 7.8 million and the additional members' capital B by EUR 1.0 million. At the end of March, Metsäliitto Cooperative had 130,948 members (31 December 2006: 131,139).
 
Metsäliitto Cooperative's Supervisory Board will make a proposal to Metsäliitto Cooperative's Representative Council, convening on 24 April 2007, to decide to pay 6.0 per cent (6.5) of interest on the members' capital, 5.0 per cent (5.5) on the additional members' capital A and 3.5 per cent (4.0) on the additional members' capital B for 2006. Thus, the interest on members' capital for 2006 would total EUR 36.2 million (37.4).
 
Personnel
The Metsäliitto Group employed an average of 24,522 (28,981) people during the period. The reduction resulted from divestments and restructuring. At the end of March, the number of personnel was 24,296 (31 December 2006: 25,007). The parent company Metsäliitto Cooperative employed 3,164 people at the end of the period (31 December 2006: 3,158).
 
Investments, acquisitions and divestments
Metsäliitto Group's capital expenditure and corporate acquisitions totalled EUR 96 million (168).
 
Capital expenditure
In February, Metsäliitto Wood Products Industry decided to build a birch plywood processing line in Suolahti. It will start up at the beginning of 2008. The new unit will employ some 20 people, and the costs of the project are estimated to be EUR 15 million.
 
Acquisitions
In January, M-real sold 9 per cent of its Metsä-Botnia shares to Metsäliitto Cooperative for EUR 240 million and posted a gain of about EUR 135 million. The gain is eliminated in the Metsäliitto Group's financial statements.
 
Metsä-Botnia's Russian subsidiary Svir Timber acquired two Russian harvesting companies. This enhances wood supply for the Svir Timber sawmill and Metsä-Botnia's long-term strategy in Russia.
 
Pulp mill project in Uruguay
The Uruguay pulp mill investment is progressing as planned, and the mill is scheduled to start up in the third quarter of 2007. At the end of March, the project employed about 4,800 people. The training and orientation programme for the process workers of the mill is currently in progress.
 
Forestal Oriental S.A. (FOSA), a subsidiary of Botnia, has continued to expand its planting and harvesting capacity. FOSA currently owns about 160,000 hectares of land, 60 per cent of which is cultivated or arable. In addition, long-term wood delivery agreements have been signed with private forest owners and foundations.
Action plan
M-real's restructuring programme, published in October 2006, is progressing as planned. In addition, in February M-real launched a programme aiming at an approximately EUR 40 million improvement in results from the operations in Finland, as of the beginning of 2009. Closures of production plants are not planned, but the number of personnel is estimated to drop by some 600 people, in addition to the programmes currently in progress.
 
Organisation
Metsäliitto Cooperation has decided to reform the organisation of Wood Supply in Finland.  According to the plans, the procurement area organisation as it exists in its present form will be abolished while wood supply districts will be reinforced. The aim of the reform is to simplify and streamline the organisation and to secure the supply of wood raw material for the production plants competitively. The new organisation will be implemented as of 1 January 2008.
 
 
Business areas
 
Wood Supply
Wood Supply sales in January-March were EUR 408 million (403), of which Wood Supply Finland accounted for EUR 304 million (323). Operating profit was EUR 10 million (10), of which Wood Supply Finland accounted for EUR 8 million (8).
 
In Finland, wood trade had a brisk start early in the year. In January-March, wood purchasing was at the planned level, and Metsäliitto's market share was normal. Prices have been on the rise for nearly all wood assortments.
 
In Russia, the competition for wood was hard, and warm weather had a more pronounced negative effect on wood supply than in other regions. Russia's announcement to raise export taxes caused disturbance in the already tight market. In January-March, imports from Russia to Finland amounted to 0.4 million cubic metres (0.6).
 
In the Baltic countries, supply was low in January, but the situation returned to normal in February. Prices have remained high, both for roundwood and chips. 
 
In the Baltic Sea region, winter was nearly a third shorter than normal, and deliveries to mills in Finland and Sweden did not quite reach the planned level. Sufficient quantities of wood were supplied to the mills, but stock levels were clearly below normal.
 
In Central Europe, storm damage gave a boost to the wood market, and the mild winter weather relieved the pressure on prices generated by fuel wood supply. Wood deliveries in France, Germany and Austria were carried out as planned.
 
Metsäliitto Wood Products Industry
Metsäliitto Wood Products Industry's sales stood at EUR 354 million (510), and operating profit was EUR 27 million (14). The decrease in sales is due to divestments, particularly the divestment of Moelven Industrier ASA, whose sales in the corresponding period last year amounted to nearly EUR 200 million. Wood Products Industry's comparable sales increased by about 14 per cent in the first quarter.
 
The demand for wood products has continued briskly, and for most product categories the prices have been at an adequate level. In addition to the market conditions, the improvement in performance is attributable to Wood Products Industry's own development and reinforcement measures.
 
In the current market conditions, the availability of logs has become a key issue. During the first quarter, Metsäliitto's Wood Supply succeeded in delivering nearly the planned quantities of raw material, despite the problems due to weather and the reduced volume of imported wood.
 
In the first quarter of the year, the most important investment decision was the building of a processing plant for birch plywood in Suolahti. Other investment decisions have related to machinery investments that ensure competitiveness and cost-efficiency.
 
Pulp Industry
The sales of the Pulp Industry stood at EUR 357 million (316), and operating profit was EUR 64 million (48). The improvement of sales and operating profit compared with the corresponding period last year resulted from a positive price development for pulp. The result was negatively affected particularly by the nine per cent weakening of the dollar against the euro and by the wood raw material price increases.
 
The price for softwood pulp in Europe was USD 760 and for birch and eucalyptus pulp USD 670. Foreign currency denominated market prices for pulp were on average 23 per cent higher for softwood pulp and 10 per cent higher for hardwood pulp compared with last year's first quarter.
 
The pulp market remained stable during the first quarter of the year. Both the manufacturers' and the customers' pulp stocks remained on a normal level or below normal. Shortage of wood in the Nordic countries, Russia, Central Europe and North America disturbed the supplying of raw material, and many pulp mills experienced involuntary production cuts. New eucalyptus pulp capacity came on the market from Chile and Brazil.
 
M-real's result includes 30 per cent (Q1/06: 39%) of the pulp industry's operating profit. Totally, 53 per cent of the figures for the pulp industry are consolidated into Metsäliitto Group's financial statements.
 
Paper and Board Industry
The Paper and Board Industry's sales totalled EUR 1,432 million (1,441) and the operating profit excluding non-recurring items was EUR 31 million (35).
 
The operating profit of M-real was affected negatively by the weakened US dollar and increased pulpwood price, as well as production losses at pulp mills, due to poorer availability of wood. Compared with last year's corresponding period, the operating profit was affected positively by the eight per cent price increase for uncoated fine paper as well as the implemented cost improvement measures.
 
The net amount of non-recurring items was EUR +73 million (0). The EUR 135 million gain obtained from the selling of Metsä-Botnia shares to Metsäliitto Cooperative was entered as non-recurring income. The amount of entered non-recurring expenses totalled EUR 62 million. The most important items were the EUR 14 million and EUR 29 million cost provisions for the completion of mill closures at Sittingbourne and Wifsta, respectively. In addition, EUR 16 million was entered as an impairment loss due to valuation of assets held for sale at expected selling price.
 
Operating profit after non-recurring items was EUR 104 million (35). 
 
Financial income and expenses together totalled EUR -41 million (-26), income from associates was EUR 0 million (-1) and net exchange gains/losses booked in financial items were EUR -5 million (+8).
 
The result for the period before tax was EUR 58 million (16), earnings per share were EUR 0.16 (0.01) and return on capital employed was 9.6 per cent (3.4). Excluding non-recurring items, the result was EUR -15 million (16), earnings per share were EUR -0.08 (0.01) and return on equity was 3.2 per cent (3.4).
 
At the end of March, equity ratio was 32.9 per cent and net gearing 114 per cent (31 December 2006: 30.9% and 126%, respectively).
 
Tissue and Cooking Paper Industry
Tissue and Cooking Paper Industry's sales stood at EUR 213 million (181), and operating profit was EUR 6 million (5). In the first quarter, comparable sales increased by about 5 per cent compared with last year. Rise in selling prices and revision of product range contributed to the growth. The share of volume growth was 0.4 per cent.
 
The increase in the price of the most important raw material, pulp, caused an additional cost of some EUR 3.5 million compared with the previous year. However, the effects of higher raw material prices were mainly compensated by successful price raises and improved sales of own brands.
 
In Central Europe and Russia, the tissue paper markets are developing more rapidly than other markets. The sales of the Slovakian tissue paper company acquired in spring last year have developed as planned, but the rise in raw material prices and the strengthened Slovak koruna had a negative effect on profitability.
 
In autumn 2006, a sales organisation and warehouse were set up in Moscow, and direct deliveries to consumers and the away-from-home products were initiated. The business in Russia is developed to enable local tissue paper processing.
 
Events after the review period
As part of the programme to improve the result of M-real's operations in Finland, the company decided in April to close down paperboard machine line 2 at the Tako board mill in Tampere. The line manufactures folding boxboard and its capacity is 70,000 tonnes per year. The paperboard machine is planned to be run down by the end of July. According to the plans, the production of the closed line will be transferred to M-real's other machines in Finland.
 
Outlook for the second quarter
Demand for wood in Finland is good for all wood assortments, and the price level is record high. At the beginning of April, Metsäliitto launched a campaign to promote thinning in summer. The rise in Russian export taxes will have only a marginal effect on this year's import volumes.     
 
The second quarter prospects for wood products continue to be mainly positive. Demand is expected to remain at a good level and product prices are believed to continue rising moderately.
 
It seems that the pulp market will remain stable during the second quarter of the year. There are still pressures to raise pulp prices, and a 20 dollar increase in softwood pulp price has been announced for the beginning of April.
 
The demand for fine paper and paperboard products is estimated to continue high, and the demand for coated magazine paper is anticipated to pick up somewhat from the earliest part of the year. The efforts to raise the prices for uncoated fine paper will continue. The market price for coated fine paper is also expected to rise slightly in Europe. The price of folding boxboard will be raised in mid-May, but prospects of increasing the prices of coated magazine paper in near future are limited.
 
In the second quarter the supply of wood to the Group's mills will be challenging. Disturbances in deliveries are possible at pulp mills as well as at sawmills. The outcome will depend on the result of purchasing and harvesting as well as transport conditions.
 
Metsäliitto Group's operating profit for the second quarter excluding non-recurring items is predicted to remain below the first quarter's result because of seasonal factors, increasing cost of wood and more extensive maintenance shutdowns.
 
 
 
Espoo, 24 April 2007
 
Metsäliitto Group
Board of Directors
 
 
 
The Interim Report was prepared in accordance with IFRS requirements for entry and valuation, but all the requirements of the IAS 34 standard were not met.
 
 
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
                                                                                   
 
 

 
 

 
 
 

 
 
 
BUSINESS SEGMENTS
 
 
 
 
 
EBITDA = Tulos ennen poistoja ja arvonalentumisia
 
 
M-real includes 30% (39%) of the Pulp Industry's (Metsä-Botnia) operating profit and Metsäliitto a further 23% (14%) in the business segments Consumer Packaging and Papers.
 
 
Production
 

 
 
 
 
 
 
 
 
 
 
 
 
The market value of open derivative contracts at the end of the review period was EUR -9 million (31.12.2005: EUR -4 million).
 
Open derivative contracts also include closed contracts to a total amount of EUR 567 million (31.12.2006: EUR 871 million).
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