Interim Review for January-September 2009
Pulp price increases and better demand improved Botnia’s third quarter result
• Sales EUR 614.0 million in January–September 2009 (EUR 929.1 million in January–September 2008)
• Operating profit excluding non-recurring items EUR -124.7 million (EUR 72.3 million)
Operating profit including non-recurring items EUR -199.7 million (EUR 72.3 million)
• Profit before taxes and excluding non-recurring items EUR -125.0 million (EUR 65.4 million)
• Investments EUR 7.7 million (EUR 16.7 million)
• Return on capital employed excluding non-recurring items -20.0% (11.0 %)
Return on capital employed including non-recurring items -32.0 % (11.0 %)
• Equity ratio 61.9 % (63.0 %)
• Net gearing 35.3 % (34.2 %)
The Uruguayan operations have been processed as discontinued operations in accordance with the IFRS standard 5 and they will be reported in the income statement and balance sheet as a separate line item after continuous operations. The Uruguayan operations are not included in the aforementioned figures.
The result for the beginning of the year was affected by the unfavourable market situation and the low price of pulp
During the first nine months of the year, Botnia’s sales for continuous operations fell by approximately 34% compared to the corresponding period last year, amounting to EUR 614.0 million (EUR 929.1 million in January–September 2008). Pulp sales volume was approximately 16% weaker than during the corresponding period last year, amounting to 1,486,600 tonnes.
The operating result without non-recurring items was EUR -124.7 million, showing a clear decline from the corresponding period last year (EUR 72.3 million). The most significant factors weakening the result were the sharp decline in the market situation and price of pulp. The result was also reduced by production curtailment shutdowns at all the mills in Finland. The result for the Uruguayan discontinued operations was EUR 22.6 million (EUR 133.3 million January-September 2008).
Non-recurring items and fixed assets write-downs connected to the closure of the Kaskinen mill amounted to EUR 75.0 million in the first quarter.
Foreign-currency-denominated market prices for softwood pulp were, on average, 29% lower compared with the corresponding period last year. The average prices of hardwood pulp fell by 36%. The average exchange rate of the U.S. dollar strengthened by over 10% compared to the corresponding period last year.
Price increases of pulp strengthened the result in the third quarter
Compared to the previous quarter, Botnia’s result for continuous operations improved slightly. Sales in the third quarter amounted to EUR 218.4 million, which was more than 11% higher than sales in the second quarter of the current year (EUR 196.6 million). The operating result of the third quarter also improved slightly, amounting to EUR -19.9 million (EUR -53.2 million April–June 2009). The result of the third quarter for discontinued operations was EUR 18.1 million (EUR 5.9 million April-June 2009).
The sales volume of pulp increased by over six per cent compared to the previous quarter of the year. The currency-denominated market prices for pulp increased by 15% (softwood pulp) and by 14% (hardwood pulp). The US dollar weakened by five per cent during the third quarter compared to the second quarter.
Pulp prices still on the increase and the difficult supply situation continues
Pulp supply and demand were in balance during the third quarter. In certain areas, there was shortage of hardwood pulp, and the delivery situation was tight. Pulp inventories remained at a low level around the world.
The price of softwood pulp went up from USD 630 to USD 730 in September. The corresponding figures for hardwood pulp were USD 500 and USD 600. In October, the prices continue to go up and the price increases implemented are expected to be approved.
A letter of intent on the new ownership structure of Metsä-Botnia was signed in July
Metsäliitto Group signed a letter of intent on 15 July 2009 concerning the sale of Botnia’s Uruguayan operations to UPM-Kymmene Oyj. The companies also agreed that UPM would reduce its ownership in Metsä-Botnia to approximately 17 per cent, with Metsäliitto getting a majority share in the company.
The sale of the Uruguayan operations stated in the letter of intent includes the majority shares of the Fray Bentos pulp mill and the Forestal Oriental company, which specialises in eucalyptus cultivation. Metsäliitto will also divest its direct ownership of 5.5% in the Uruguayan operations.
As a result of the arrangement, Metsäliitto Cooperative will own about 53% of Metsä-Botnia, M-real around 30% and UPM around 17%. Once the arrangement has been completed, Metsä-Botnia will become a subsidiary of Metsäliitto, and Metsä-Botnia’s sales will be entirely consolidated with the Group figures.
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.
Streamlining the operations of the Kemi mill integrate
The operations of the Kemi mill integrate are being streamlined by merging the management teams of the Botnia pulp mill and M-real’s Kemiart Liners board mill. Lauri Verkasalo of Metsä-Botnia was nominated Mill Manager on 13 August 2009. Pertti Lehmonen was nominated Production Manager of the integrate.
At the same time, an assessment for improving the efficiency of the operations in the entire integrate was also launched. Statutory labour negotiations were started in both companies on 17 August 2008 in order to streamline the tasks of the salaried employees, laboratory personnel and Kemiart Liners maintenance personnel. The statutory labour negotiations affect 103 employees, and the estimated maximum reduction need is 52 people.
Production record broken at the Äänekoski mill
A new production record was made at the Äänekoski mill in August with 44,867 tonnes of pulp. Annual maintenance shutdowns were carried out at the Rauma and Kemi mills in the third quarter.
Near-term outlook
The reopening of closed mills in Canada and Finland are casting a shadow over the near-term market outlook. In addition, the measures implemented by the USA and Canada to support their domestic pulp industry offer local companies a competitive edge.
Events after the review period
The statutory negotiations related to the streamlining of Kemi operations were completed on 7 October 2009. The negotiations affected 103 employees. The streamlining of operations will reduce 29 jobs at the Kemi mill integrate. The restructuring measures will be completed mostly during 2009.
Negotiations have been finalised between Metsäliitto Cooperative, M-real Corporation and UPM-Kymmene Corporation on the new ownership structure of Oy Metsä-Botnia Ab and the divestment of the Uruguay operations to UPM. The agreement on the arrangement has been signed on 22 October 2009. With the arrangement, Metsä-Botnia will become a subsidiary of Metsäliitto Cooperative.
The transaction is expected to be closed latest during the first quarter of 2010. The completion of the transaction requires, among others, the approval of the competition authorities and the completion of the financing arrangements.
