Paper Company's Performance Hit By Finnish Dispute

In 2005 M-real's consolidated result before taxes, excluding non-recurring items, fell to a loss of EUR142 million from a loss of EUR75 million in the previous year.

In 2005 M-real's consolidated result before taxes, excluding non-recurring items, fell to a loss of EUR142 million from a loss of EUR75 million in the previous year.

The operating result net of non-recurring items fell to EUR4 million from EUR61 million a year earlier.

Performance was weakened above all by the losses caused by the dispute in the Finnish paper industry, said the company.

The dispute cut a total of about EUR85-90 million off of the operating result, which showed a profit of EUR36 million.

Other factors that cut in to profitability were the fall in the price of uncoated fine paper, the rise in the costs of oil-based raw materials and higher transport and energy costs.

By contrast, profitability was improved by the effects of savings measures and the rise in the price of coated magazine paper.

The operating result for 2005 includes EUR32 million of non-recurring items (a charge of 33 million in 2004), the major items of which were a capital gain of EUR81 million on the sale of an eight per cent stake in Metsa-Botnia, EUR20 million of impairment charges on property, plant and equipment at the Pont Sainte Maxence fine paper mill in France, as well as a total of EUR19 million of expense provisions for the efficiency-boosting programmes in Sweden and France.

Key figures for 2005, excluding non-recurring items showed a profit of EUR4 million (compared to EUR61 million for the previous year).

The result before taxes was a loss of EUR142 million (compared to the previous year's loss of EUR75million).

Earnings per share were EUR0.35 negative (EUR0.28 positive in 2004) with return on capital employed st 0.5 per cent (1.6 in 2004).

Sales for 2005 stood at EUR5,241 million (EUR5,522 in 2004), with a profit of EUR36 million, compared to EUR28 million in 2004.

A pretax loss of EUR114 million, compared to 2004's pretax loss of EUR108 million was recorded.

The result for the report period showed a loss of EUR81 million compared with a profit of EUR45 million for the same period in 2004.

Earnings per share stood at EUR0.25 negative (0.19 positive in 2004), with a return on capital employed at 1.2 per cent (0.9 in 2004).

The equity ratiowas 36.6 per cent (37.5)in 2004), and there was a gearing ratio of 95 per cent (89 per cent in 2004).

The board of directors' dividend proposal was for EUR0.12 per share (0.12 in 2004).

In 2005 the result before taxes was improved by a valuation gain on interest rate derivatives of EUR4 million.

On the other hand, earnings were burdened by a net EUR33 million of foreign exchange losses on trade receivables, trade payables, financial income and expenses and the measurement of currency hedges (a gain of EUR4 million in 2004) said the company.

Net interest and other financial expenses, excluding non-recurring items and a measurement gain on interest rate derivatives, fell to EUR115 million from EUR140 million in 2004, thanks to lower net interest-bearing liabilities.

All in all, financial income and expenses, excluding non-recurring items, were EUR144 million negative (136 negative) added M-real.

The fourth-quarter result before taxes in 2005 was a loss of EUR49 million.

In the third quarter the result was a net profit of EUR1 million.

The result, excluding non-recurring items, was a loss of EUR11 million (a profit of EUR1 million).

The result was weakened mainly by seasonal factors, such as a low operating rate in December and the costs of maintenance works as well as the rise in energy costs and the decline in fine paper deliveries.

Factors that improved the result were the rise in the average price of office and magazine papers, as well as the indirect impact of the increase in Metsa-Botnia's operating result.

M-real's president and chief executive officer, Hannu Anttila, said: "The last year of the action plan launched in autumn 2004 has started, and a large part of these measures have now been carried out.

We have streamlined our operational models, clarified profit accountability and paid down debt substantially.

More than half of the measures that will make possible EUR200 million of annual cost savings have been put in to effect.

In addition, higher production efficiency will make an earnings improvement of at least EUR30 million possible.

The action plan will be completed this year." He added that demand for M-real's main products will improve during the first quarter of this year, and the company is optimistic about price increases, particularly for uncoated fine paper.

And he continued: "The price of magazine paper is also likely to rise somewhat.

Because of the sharp rise in production costs, there is a considerable need to implement price increases for coated fine paper and paperboard products.

Our key objective in the current year is to achieve a clear turn-around in our earnings and to post a profit before taxes and non-recurring items." In 2006 economic growth in western Europe is forecast to strengthen slightly, but it will probably again come in at under two per cent.

The amount of money spent on printed advertising is forecast to increase somewhat faster than overall economic growth, said M-real.

However, the high market prices of crude oil will keep oil-based raw material prices high and raise transport costs.

In addition, the in rise energy prices, especially for natural gas and electricity, will raise production costs significantly compared with 2005, added the company.

In the last quarter of 2005, there was good demand for M-real's main products, and capacity utilisation rates were high, except for the usual seasonal slowdown in demand in December.

In the first quarter of 2006, demand for the company's main products is forecast to improve due to seasonal factors.

Average prices of office paper and coated magazine paper are forecast to be at a somewhat higher level in the first quarter of this year than in the last quarter of 2005.

Measures aiming to increase the prices of coated fine paper are continuing.

Over the next few months the price of folding boxboard is expected to remain stable.

M-real's first-quarter result before taxes and excluding non-recurring items is forecast to be in the black.

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