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Metsäliitto Group Interim Report January-September 2009
 

22/10/2009
Metsäliitto Group Interim Report 1 January-30 September 2009, October 22, 2009 at 12.00 a.m.
 
Metsäliitto Group's operating result excluding non-recurring items EUR 9 million positive in July-September
 
Operating result excluding non-recurring items EUR -119 million in January-September
 
Result for January-September
  •         Sales EUR 3,647 million (1-9/2008: EUR 4,981 million).
  •         Operating result excluding non-recurring items was EUR -119 million (120). Operating result including non-recurring items was EUR -186 million (208).
  •         Result before tax excluding non-recurring items was EUR -232 million (-43). Result before tax including non-recurring items was EUR -310 million (44).
    •  
    Result for July-September
  •         Sales EUR 1,155 million (7-9/2008: EUR 1,595 million).
  •         Operating result excluding non-recurring items was EUR 9 million (27). Operating result including non-recurring items was EUR 7 million (19).
  •         Result before tax excluding non-recurring items was EUR -51 million (-28). Result before tax including non-recurring items was EUR -53 million (-35).
    •  
    Events in the third quarter
  •         Positive signs in the Group's core businesses: The result of M-real's Consumer Packaging business improved significantly - the demand for consumer packaging board increased and the operating rates were at a good level; strong profit development in the tissue paper business continued; the price of pulp increased considerably and its operating rates increased.
  •         Metsäliitto signed a letter of intent with UPM-Kymmene Corporation in July concerning the new ownership structure of Metsä-Botnia.
  •         M-real received a cash payment of EUR 190 million in August from Sappi as an early payment of its vendor notes in connection with the Graphic Papers transaction.
    •  
    Events after the review period
  •         An agreement on the new ownership structure of Metsä-Botnia and the divestment of Metsä-Botnia's operations in Uruguay to UPM-Kymmene Corporation was signed on 22 October 2009.
    •  
    "Positive signs can be seen in several of the Group's business operations which is reflected in the figures for the quarter. However, the forest industry is dependent on the general economic development, and therefore it is too early to speak about a clear turn of the market for the better."
     
    Kari Jordan, President & CEO, Metsäliitto Group

     
     
    Metsäliitto Group
    Income statement
    (Continuing operations)
    2009
    1-9
    2008
    1-9
    2009
    Q3
    2008
    Q3
    2008
    1-12
    Sales
    3 647
    4 981
    1 155
    1 595
    6 434
      Other operating income
    115
    215
    31
    43
    239
      Operating expenses
    -3 672
    - 4 702
    -1 103
    -1 524
    -6 189
      Depreciation and impairment losses
    -277
    -286
    -76
    -95
    -482
    Operating result
    -186
    208
    7
    19
    2
      Share of results in associates
    -11
    11
    -1
    8
    6
      Exchange gains and losses
    1
    1
    4
    0
    19
      Other net financial items
    -113
    -176
    -63
    -63
    -260
    Result before income tax
    -310
    44
    -53
    -35
    -233
      Income tax
    19
    -6
    -6
    2
    60
    Result from continuing operations
    -291
    39
    -59
    -33
    -172

    Metsäliitto Group
    Profitability
    (Continuing operations)
    2009
    1-9
    2008
    1-9
    2009
    Q3
    2008
    Q3
    2008
    1-12
    Operating result, EUR mill.
    -186
    208
    7
    19
    2
       - " -, excluding non-recurring items
    -119
    120
    9
    27
    45
    Return on capital employed, %
    -4.8
    6.1
    1.3
    2.7
    0.5
       - " -, excluding non-recurring items
    -2.9
    3.9
    1.4
    3.3
    1.3
    Return on equity, %
    -25.1
    2.3
    -17.2
    -6.1
    -8.4
      - " -, excluding non-recurring items
    -18.3
    -3.0
    -16.6
    -4.7
    -6.4
     
     
     
     
     
     
    Financial position
    2009
    30.9.
    2008
    30.9.
    2009
    30.6.
    2008
    30.6.
    2008
    31.12.
    Equity ratio, %
    23.9
    27.5
    25.6
    30.1
    26.0
    Net gearing ratio, %
    180
    162
    162
    147
    149
    Interest-bearing net liabilities, EUR mill.
    2 363
    3 373
    2 348
    3 421
    2 666
     
    Sales and Operating result
    1-9/2009
    (EUR mill.)
     Wood
    Supply   
    Wood
    Products
    Industry
    Pulp *)
    Industry
    Board
    and
    Paper
    Industry
    Tissue
    and
    Cooking Papers
    Sales
    809
    613
    898
    1 826
    661
     Other operating income
    6
    4
    22
    86
    5
     Operating expenses
    -804
    -626
    -933
    -1 956
    -563
     Depreciation & impairment losses
    -3
    -29
    -149
    -171
    -31
    Operating result
    8
    -38
    -162
    -215
    72
      Non-recurring items
    0
    0
    75
    58
    0
    Operating result
    excl. non-recurring items
     
    8
     
    -38
     
    -87
     
    -157
     
    72

    *) Represents 100%. The Metsäliitto Group consolidates 53% of the Pulp Industry.
     

     
            The figures are unaudited
     
    METSÄLIITTO GROUP
     
    INTERIM REPORT 1 JANUARY-30 SEPTEMBER 2009      
     
    Sales and result
    Metsäliitto Group's sales for January-September were EUR 3,647 million (4,981).
     
    Operating result excluding non-recurring items was EUR -119 million (120). Net non-recurring items amounted to EUR -67 million (88), EUR 65 million of which was already recognised during the first half of the year. Of the non-recurring costs, EUR 40 million was related to the closure of the Metsä-Botnia Kaskinen mill, EUR 29 million to the closure of the M-real Hallein paper mill and EUR 4 million to M-real's ongoing efficiency improvement programmes. A sales gain of EUR 8 million was recognised for the Vapo deal during the second quarter. Non-recurring items amounted to EUR -2 million during the third quarter.
     
    The third-quarter operating result excluding non-recurring items was EUR 9 million positive (Q2/09: EUR -61 million and Q1/09: EUR -67 million). The result was improved by, among others, higher delivery volumes, increase in the price of sawn timber, decrease in the price of wood raw material, higher sales price of pulp and implemented cost-savings. The good profit development of the tissue paper business continued during the third quarter.
     
    Metsäliitto Group's operating result including non-recurring items for January-September was EUR -186 million (1-9/2008: 208). Financial income amounted to EUR 28 million (17), results from associates were EUR -11 million (11) and financial expenses totalled EUR 141 million (193).
     
    Net exchange gains/losses recognised in financial items were EUR 1 million (1). The US dollar strengthened on average 10% in January-September, the British pound weakened by 13% and the Swedish krona by 14% year-over-year.
     
    Share of results in associated companies include a EUR 11 million non-recurring expense item related to the sale of Myllykoski Paper's Sunila shares. In the first quarter, M-real made a market repurchase with a nominal value of approximately EUR 60 million of its EUR 400 million bond, which matures in December 2010. A profit of approximately EUR 31 million for the purchase was recognised in financial income.
     
    A loss of approximately EUR 30 million was recognised in financial items during the third quarter after Sappi Ltd had repaid its four-year debt of EUR 220 million early to M-real. The repayment price was 86.5% of the nominal value of the vendor notes, or approximately EUR 190 million.
     
    The result before tax was EUR -310 million (44), and taxes, including changes in deferred tax liabilities, totalled EUR 19 million (-6). The result for continuing operations was EUR -291 million (39), the result for discontinued operations EUR -15 million (-276) and the result for the review period EUR -306 million (-237).
     
    Of the period's results, EUR -140 million (-73) was attributable to parent company members and EUR -166 million (-164) to minority interests.
     
    The Group's return on capital employed for continuing operations was -4.8% (6.1), and the return on equity was -25.1% (2.3). Excluding non-recurring items, return on capital employed was -2.9% (3.9) and return on equity was -18.3% (-3.0).
     
    Balance sheet and financing
    Metsäliitto Group's total liquidity at the end of September was EUR 1.7 billion (31 December 2008: 1.8). Of this, EUR 0.5 billion (0.6) was in liquid assets and investments, and EUR 1.2 billion (1.2) was in off-balance-sheet binding credit facilities. In addition, the Group can satisfy short-term financial needs with non-binding commercial paper schemes in Finland and abroad, as well as with credit limits amounting to approximately EUR 0.6 billion.

    The Group's equity ratio in September was 23.9% and net gearing totalled 180% (31 December 2008: 26.0% and 149%, respectively). Interest-bearing net liabilities stood at EUR 2,363 million (31 December 2008: 2,666). The equity ratio of the parent company, Metsäliitto Cooperative, was 55.7% at the end of September and the net gearing ratio was 44% (31 December 2008: 54.6% and 45%, respectively).
     
    EUR 84.7 million of Metsäliitto Cooperative's members' capital matured at the beginning of July. Members' capital has decreased by EUR 58.8 million in January-September. The actual members' capital has decreased by EUR 0.7 million and the additional capital A by EUR 58.9 million. The additional members' capital B has increased by EUR 0.8 million. At the end of September, Metsäliitto Cooperative had 127,118 members (31 December 2008: 129,267).
     
    The change in the fair value of investments available for sale in January-September was approximately EUR -101 million, based mainly on the decrease in the value of the Pohjolan Voima shares. The change in the fair value of the shares relates mainly to the decrease of the 12 month moving average value of Nord Pool electricity futures used in the valuation.
     
    Personnel
    The Group employed an average of 15,560 people (17,759) during January-September. At the end of September, the number of personnel in the Group was 14,391 (31 December 2008: 16,729). The parent company, Metsäliitto Cooperative, had a headcount of 2,917 at the end of September (31 December 2008: 3,217).

     
    Investments
    Metsäliitto Group's capital expenditure totalled EUR 116 million (190).
     
    Business areas
     
    Wood Supply
    Wood Supply sales totalled EUR 809 million (1,372) in the review period and operating result amounted to EUR 8 million (26). The operating result does not include non-recurring items (1). Wood Supply Finland accounted for EUR 608 million (936) of the sales and EUR 5 million (21) of the operating result.
     
    In Finland, wood trade was exceptionally slack, even though it picked up slightly towards the end of the period. During January-September, Metsäliitto bought around 40% of the amount purchased in the corresponding period the year before. The forest industry's overall January-September purchases from privately owned forests totalled approximately 7.5 million cubic metres (29.4).
     
    Metsäliitto's purchases have been emphasised on roundwood and forest energy. In order to speed up roundwood trade, owner-members were paid a double bonus on wood from sales of renewal stands marked for cutting made between the beginning of August and the end of September.
     
    An organisational restructuring of the supply and delivery unit was carried out in Northern Finland to adjust operations to decreased delivery volumes of wood.
     
    In the Russian market, the demand for softwood log exceeded the supply, however, the demand for pulpwood remained low, except for birch pulpwood. Wood supply at the Metsä-Botnia Svir Timber sawmill was handled according to plans. Wood supplies from Russia to Finland remained low.
     
    In the Baltic countries, the wood trade of private forest owners was at a standstill throughout the review period. Most of the wood was felled from state-owned forests. Metsäliitto's deliveries to Finland and Sweden decreased clearly, and the wood supply organisations were adjusted to match the new volumes.
     
    In January-September, Wood Supply's overall delivery volumes to production units amounted to 18.3 million cubic metres (26.6).
     
    As of the beginning of 2010, Metsäliitto Wood Supply will be organised into four business lines: Wood Supply Finland, International Wood Supply, Wood Energy and Forestry Services.
     
    Wood Products Industry
    The sales of Metsäliitto Wood Products Industry amounted to EUR 613 million (923), while the operating result was EUR -38 million (-19). The operating result does not include non-recurring items.
     
    The operating result for the third quarter was EUR 3 million negative, yet noticeably better than for the previous quarters (Q2/09: EUR -10 million and Q1/09: EUR -25 million). The decrease in the operating loss is due to a decrease in the price of wood raw material, increase in the price of sawn timber, a revival in the demand for construction products and the implemented cost-saving programmes.
     
    During the third quarter, the construction market began to pick up especially in the UK following government subsidies, low interest rates and revival of the real estate business. The production restrictions on sawn goods led to the price of sawn goods increasing at the end of the review period. The market share in light and cold-storage transport fleet could be increased with special products.
     
    As part of the development programme related to energy efficient construction, Metsäliitto Wood Products Industry launched a new Kerto-framed passive roof element and a base plate.
     
    Due to the poor availability of competitively priced wood raw material, summer shutdowns were continued at all operational sawmills. Many sawmills had to restrict production even in September.
     
    Pulp
    Pulp industry sales were EUR 614 million (929) in January-September, and the operating result excluding non-recurring items amounted to EUR -125 million (72). The non-recurring items recognised in the first quarter totalled EUR -75 million and were related to the closure of the Kaskinen mill. The operating result including non-recurring items was EUR -200 million (72).
     
    The most significant factors burdening the result were the heavy deterioration of the market situation and the decrease in the price of pulp compared with the corresponding period the previous year. Foreign currency-denominated market prices for softwood pulp were, on average, 29% lower and for hardwood pulp 36% lower. The result was also decreased by production curtailment shutdowns at all mills in Finland.
     
    Metsä-Botnia's result improved slightly compared to the previous period. The operating loss for the third quarter was EUR 20 million, while for the second quarter, operating loss was EUR 53 million.
     
    The price of softwood pulp increased from USD 630 in June to USD 730 in September, and the price of hardwood pulp increased from USD 500 to USD 600.
     
    Metsäliitto signed a letter of intent on 15 July 2009 concerning the sale of Metsä-Botnia's operations in Uruguay to UPM-Kymmene Corporation. The companies also agreed that UPM would reduce its ownership in Metsä-Botnia to approximately 17%, with Metsäliitto getting a majority share in the company. The existing cooperation agreements will, for their essential parts, remain in effect without changes even after the completed arrangement, and Metsä-Botnia will continue to act as a sales channel for the market pulp of both UPM and M-real.
     
    M-real Group's financial statements include 30% of Pulp Industry's figures. Of the Pulp Industry's figures, 53% are consolidated into Metsäliitto Group's financial statements. Once the arrangement according to the letter of intent announced in July becomes final, the consolidation method of Metsä-Botnia will change. Metsä-Botnia will become an associate in M-real's consolidated financial statements and a subsidiary in Metsäliitto's consolidated financial statements and will consequently be fully consolidated into the Metsäliitto Group's figures. The transaction is expected to be closed latest during the first quarter of 2010.
     
    Metsä-Botnia has processed the operations in Uruguay as discontinued operations in accordance with the IFRS 5 standard. The operations in Uruguay are not included in the result figures presented above. The operations in Uruguay have not been a separate segment in terms of Metsäliitto Group. Therefore, only the items related to the balance sheet of the operations in Uruguay have been reported as financial assets and liabilities available for sale.
     
    Board and Paper
    The sales of Board and Paper totalled EUR 1,826 million (2,514), and the operating result excluding non-recurring items was EUR -157 million (16).
     
    M-real's net non-recurring items in January-September totalled EUR -58 million (84). Of these, EUR 22 million were related to the closure of the Metsä-Botnia Kaskinen mill, EUR 28 million to the closure of the Hallein paper mill and EUR 8 million to various profit improvement measures and cost provisions.
     
    The operating result excluding non-recurring items decreased from last year's corresponding period due to the drop in delivery volumes following weaker demand, as well as the decrease in the values of product, wood and pulp inventories. The result was improved by price increases and cost savings.
     
    The demand for consumer packaging board strengthened during the third quarter, and the operating rates were at a good level. In addition, the order volumes of uncoated fine paper improved during the third quarter. The demand for speciality papers continues to be below the normal level, but price level has mainly remained steady.
     
    M-real's internal profit improvement programmes have proceeded according to plans. The implemented streamlining measures and decreases in production costs during
     
    2009 help the company's profitability. The 2009 full-year result has been weighed down by the considerable operational expenses incurred from adjusting operations to a smaller scale and making them more profitable.
     
    The operating result including non-recurring items was EUR -215 million (100) in January-September. Net interest and other financial expenses totalled EUR 59 million (108), results from associates were EUR -14 million (-1) and net exchange gains/losses recognised as financial items were EUR 4 million (2).
     
    The financial income of the review period includes a profit of about EUR 31 million from repurchases of a EUR 400 million bond due in December 2010. A loss of approximately EUR -30 million has been booked in the financing expenses due to the premature repayment of the bond issued to Sappi. Results from associates include a EUR 11 million non-recurring expense item related to the sale of Myllykoski Paper's Sunila shares.
     
    The result before tax was EUR -284 million (-7), earnings per share were EUR -0.83 (-0.05) and return on capital employed was -8.5% (4.9). Excluding non-recurring items, the result before taxes was EUR -215 million (-91), earnings per share were EUR -0.64 (-0.31) and the return on capital employed was -5.6% (1.3).
     
    At the end of September, M-real's equity ratio was 28.5 % and net gearing amounted to 121% (31 December 2008: 30.8% and 90%, respectively). Some of M-real's loan agreements set a 120% limit on the company's net gearing ratio and a 30% limit on the equity ratio. At the end of September, net gearing calculated as defined in the loan agreements was approximately 94% and the equity ratio about 34%.
     
    Tissue and Cooking Papers
    The January-September sales of Metsä Tissue, which produces tissue and cooking papers, totalled EUR 661 million (695), and its operating result was EUR 72 million (33).
     
    Sales were down some five per cent year-over-year. The decrease in sales was due to changes in exchange rates (-5%) and lower sales volumes (-2%). Metsä Tissue's cash flow development and liquidity are good.
     
    The volumes of the company's own brands increased compared to the previous year. The development of Serla's sales in particular continued to be strong. Sales volumes of large-scale consumer operations improved during the third quarter, which is due, for instance, to the increased demand for hygiene products along with the spread of the H1N1 virus.
     
    Metsä Tissue has invested in three new napkin machines and associated printing and packaging lines. The machines can produce both single-colour and high-class patterned napkins. The investment also enables increasingly flexible and reliable deliveries.
     
    Baking and cooking products will be sold and marketed under the SAGA brand in the future. In addition a Swan-environmental-labelled toilet tissue for sensitive skin, Herbal Sensitive, was launched in Finland during the third quarter. A new four-ply Lambi Aloe Vera product with balm was launched in the Eastern European market.
     
    Metsä Tissue has been streamlining its business and organisation during the autumn by moving from five business lines to three. After the reorganisations, the lines are Consumer, Away-from-Home and Baking & Cooking.
     
    Risks and uncertainties
    The estimates and statements in this interim report are based on current plans and estimates. They involve risks and uncertainties that may cause the results to differ from those expressed in such statements. The risks related to the Group's business have been explained more extensively in Metsäliitto Group's Annual report for 2008.
     
    New ownership structure of Metsä-Botnia
    Metsäliitto and UPM-Kymmene Corporation signed a letter of intent on 15 July 2009 concerning the sale of Metsä-Botnia's Uruguayan operations to UPM. The companies also agreed that UPM would reduce its ownership in Metsä-Botnia to approximately 17%, with Metsäliitto getting a majority share in the company. Among other things, the letter of intent includes Metsäliitto Group's shares in the Fray Bentos pulp mill and in Forestal Oriental, a company specialised in the cultivation of eucalyptus.
     
    Following the arrangement, Metsäliitto Cooperative will own about 53% of Metsä-Botnia, M-real around 30% and UPM around 17%. Currently, Metsäliitto Cooperative has a 23%, M-real a 30% and UPM a 47% holding in Metsä-Botnia.
     
    A definitive agreement still requires the Boards of both parties to approve it, negotiations with financing parties to be concluded and the competition authorities to give their approval. The transaction is expected to be closed latest during the first quarter of 2010.
     
    Metsäliitto, M-real and UPM published stock exchange releases about the letter of intent on 15 July 2009. The Boards of the parties signed the actual agreement on 22 October 2009. A detailed stock exchange release about the arrangement has been published today.
     
    Near-term outlook
    Wood trade is expected to pick up towards the end of the year. In Finland, the demand for logging sites predominated by roundwood, forest energy and thinning areas providing summer harvesting continues to be good. The demand for pulpwood will increase, particularly in terms of birch pulpwood.
     
    With regard to Wood Products Industry, there are signs of a revival in the construction market, which is reflected as an increase in the demand for engineered wood products. Nevertheless, sawn goods production must be restricted if availability of wood raw material that is competitive in terms of price is not sufficient. The demand for plywood is not expected to improve significantly.
     
    Globally, pulp stocks remained low during the third quarter, and there were even local shortages of hardwood pulp. Pulp prices continue to increase in October. However, the strong support measures by the United States and Canada for their own pulp industries are casting a shadow over the near-term market outlook. This results in reopening of closed mills and offers a competitive advantage.  
     
    M-real's third quarter was clearly better than the first half of the year. The fourth quarter is also expected to be noticeably better than the first half of the year in terms of profitability. Due to the weak result for the first six months, M-real's operating result for 2009 as a whole excluding non-recurring items will remain clearly below the year before.
     
    The average demand for tissue and cooking papers is expected to remain rather stable. Sales of own brands in particular are expected to continue to grow. However, raw material prices and transport costs are expected to continue to increase. After the recent years' significant streamlining measures, growth is now pursued from various development projects.
     
    Metsäliitto Group's operating result excluding non-recurring items in the third quarter improved significantly compared to the previous quarters of the year. The positive profit development will continue, but mainly for seasonal reasons, the operating result for the fourth quarter is estimated to fall below third-quarter levels. Metsäliitto Group's 2009 operating result excluding non-recurring items will be clearly weaker than last year.
     
     
    Espoo, 22 October 2009
     
    Metsäliitto Group
    Board of Directors
     
     
     
    Further information:
    Ilkka Pitkänen, Group CFO, Metsäliitto Group, tel. +358 10 465 4260
    Anne-Mari Achrén, Group CCO, Metsäliitto Group, tel. +358 10 465 4541
     
     

     
    The figures are unaudited
     
    METSÄLIITTO GROUP

    Unaudited
     
     
    Unaudited
     
                                                                     Equity attributable to members of parent company
     

     
     
    Unaudited                                               
     

     
     
    Unaudited
    BUSINESS SEGMENTS
     
     
    The Metsäliitto Group consolidates 53% of the Pulp Industry
    (M-real 30% and Metsäliitto Cooperative 23%).
     
     

     
     
    Unaudited
     
     
    Other operations include Vapo Group (49,9%) until end of June 2009 and Metsäliitto's service and holding functions.
     
     
     
     
    EBITDA = Operating result before depreciation and impairment losses.
    Unaudited
     
     

     
     
    Unaudited
     
    In 2009 Assets classified as held for sale include the tangible assets of Metsä-Botnia's operations in Uruguay and in 2008 the tangible assets of M-real's Graphic Papers business.
     
    In 2008 Depreciation and impairment charges of discontinued operations include the depreciation and impairment charges of the Graphic Papers business.
     
     
     
     

    The market value of open derivative contracts at the end of the review period was EUR -45 million (12/08: EUR 33 million). Open derivative contracts also include closed contracts to a total amount of EUR 668 million (12/08: EUR 787 million).
     
     
     
    Accounting policies
    The Financial Statements Bulletin was prepared in accordance with the IAS 34 standard Interim Financial Reporting and the accounting policies presented in Metsäliitto Group's Annual Report.
     
    The Group has adopted the following standards from the beginning of 2009:
     
    IAS 1 (Revised), 'Presentation of Financial Statements'. The revised standard is aimed at improving users' ability to analyse and compare the information given in financial statements by separating changes in equity of an entity arising from transactions with owners from other changes in equity. Non-owner changes in equity are presented in the statement of comprehensive income.
     
    IFRS 8, 'Operating Segments'. The new standard replaces IAS 14. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. The segments reported by the Group as from Jan 1, 2009 are Wood Supply, Wood Products Industry, Pulp Industry, Board and Paper Industry, Tissue and Cooking Papers and Other operations. The figures for the comparative periods have been changed according to the new segments.
                                                                             
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