Mets?itto Group's Financial Statements for 2009
(Thomson Reuters ONE) - Mets?itto Group's Financial Statements for 2009, 4 February 2010 at 12:00 noonMets?itto Group's full year operating result excluding non-recurring items EUR-75 million in 2009Positive operating result excluding non-recurring items EUR 44 million inOctober-DecemberResult for 2009 * Sales EUR 4,837 million (2008: EUR 6,434 million). * Operating result excluding non-recurring items was EUR -75 million (45). Operating result including non-recurring items was EUR -169 million (2). * Result before tax excluding non-recurring items was EUR -224 million (-192). Result before tax including non-recurring items was EUR -329 million (-233).Result for October-December * Sales EUR 1,190 million (10-12/2008: EUR 1,453 million). * Operating result excluding non-recurring items was EUR 44 million (-75). Operating result including non-recurring items was EUR 18 million (-206). * Result before tax excluding non-recurring items was EUR 8 million (-148). Result before tax including non-recurring items was EUR -18 million (-277).Events in the fourth quarter of 2009 * An agreement on the new ownership structure of Mets?otnia and the sale of operations in Uruguay to UPM-Kymmene Corporation was signed on 22 October 2009. The transaction was completed on 8 December 2009. * The Market Court imposed an infringement fine of EUR 21 million on Mets?itto Cooperative for breach of competition legislation in 1997-2004. * M-real announced new profit improvement measures, including the permanent closure of the Alizay pulp mill in France, an investment of EUR 22 million to improve the energy efficiency of the Husum mill in Sweden, and a EUR 20 million internal profit improvement programme. In addition to these, M-real announced significant streamlining efforts at the Zanders speciality paper mills in Germany."The positive price development of pulp, higher utilisation rates of the millsand internal profit improvement measures had a favourable effect on theoperating result for the fourth quarter. During the period, we continuedfocusing on our core functions and completed significant restructuring measures.The Group's business structure is now almost in line with the target we set in2005. We will continue the strategic review of the paper businesses, and alsoother industrial arrangements are possible if justified by shareholder value."Kari Jordan, President & CEO, Mets?itto GroupMets?itto Group Income statement 2009 2008 2009 2008 2007 (Continuing operations) 1-12 1-12 Q4 Q4 1-12 Sales 4 837 6 434 1 190 1 453 6 797 Other operating income 353 239 237 23 92 Operating expenses -4 858 -6 189 -1 185 -1 487 -6 256 Depreciation and impairment losses -501 -482 -224 -195 -589 Operating result -169 2 18 -206 44 Share of results in associates -16 6 -4 -5 12 Exchange gains and losses 2 19 2 18 5 Other net financial items -147 -260 -34 -84 -220 Result before income tax -329 -233 -18 -277 -160 Income tax 10 60 -9 66 -24 Result from continuing operations -318 -172 -27 -211 -183Mets?itto Group Profitability 2009 2008 2009 2008 2007 (Continuing operations) 1-12 1-12 Q4 Q4 1-12 Operating result, EUR mill. -169 2 18 -206 44 - " -, excluding non-recurring items -75 45 44 -75 301 Return on capital employed, % -3.3 0.5 1.2 -16.1 1.4 - " -, excluding non-recurring items -1.4 1.3 3.7 -6.1 6.4 Return on equity, % -20.0 -8.4 -8.0 -43.6 -7.5 - " -, excluding non-recurring items -13.4 -6.4 -0.3 -17.0 2.7 Financial position 2009 2008 2009 2008 2007 31.12. 31.12. 30.9. 30.9. 31.12. Equity ratio, % 24.5 26.0 23.9 27.5 28.8 Net gearing ratio, % 157 149 180 162 142 Interest-bearing net liabilities, EUR mill. 2 203 2 666 2 363 3 373 3 271Business segments Sales and Operating result Wood Board Tissue 2009 Wood Products Pulp and and (EUR mill.) Supply Industry Industry Paper Cooking Industry Papers Sales 1 101 806 1 195 2 432 890 Other operating income 10 6 344 252 8 Operating expenses -1 116 -814 -1 173 -2 595 -763 Depreciation & impairment losses -4 -45 -173 -356 -42 Operating result -9 -47 193 -267 93 Non-recurring items 21 6 -236 117 0 Operating result excl. non-recurring items 12 -41 -43 -150 93The figures of the financial statements are unauditedMETS?IITTO GROUPFINANCIAL STATEMENTS 2009Sales and resultMets?itto Group's sales for 2009 totalled EUR 4,837 million (6,434), and theoperating result excluding non-recurring items was EUR -75 million (45).Net non-recurring items amounted to EUR -94 million (-43), of which EUR 67million was recognised during January-September. Of the non-recurring costs, EUR40 million was related to the closure of the Mets?otnia Kaskinen mill and EUR29 million to the closure of the M-real Hallein paper mill. Other costprovisions totalled EUR 6 million. A sales gain of EUR 8 million was recognisedfor the Vapo deal in June.During the fourth quarter, Mets?itto Group's operating profit included EUR195 million of non-recurring income and EUR 222 million of non-recurringexpenses. The non-recurring income was fully related to the ownershiparrangements of Mets?otnia.The most significant cost items were the impairment charge of EUR 113 millionbooked by M-real and the write-downs and cost provisions of EUR 73 millionassociated with the action plans announced in December. Mets?itto Cooperativerecognised the EUR 21 million infringement fine imposed by the Market Court forbreach of competition legislation in 1997-2004 as an expense, and Wood ProductsIndustry made a write-down of EUR 6 million on the fixed assets of theKyr?ski sawmill. Other cost provisions totalled EUR 9 million.The fourth-quarter operating result excluding non-recurring items was EUR 44million positive (Q4/08: EUR -75 million). Compared to the previous quarter theoperating result improved by EUR 35 million. The result was improved by, amongother things, more favourable development of pulp prices than expected, improvedutilisation rates at the mills and internal profit improvement measures. Theresult of the tissue paper business was good throughout the year. Theconsolidation method of Mets?otnia was changed from associated company tosubsidiary on 8 December 2009, and the change had an impact of approximately EUR5 million on the operating result.Mets?itto Group's operating result including non-recurring items in 2009 wasEUR -169 million (2). Financial income amounted to EUR 26 million (17), incomefrom associates was EUR -16 million (6) and financial expenses totalled EUR 173million (277).Net exchange gains recognised in financial items were EUR 2 million (19). The USdollar strengthened on average 5% during the year, while the British poundweakened by 12%and the Swedish krona by 10% compared to 2008.Income from associates includes an EUR 11 million non-recurring expense itemrelated 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 60million of its EUR 400 million bond, which matures in December 2010. A profit ofapproximately EUR 31 million for the purchase was recognised in financialincome.A loss of approximately EUR 30 million was recognised in financial items duringthe third quarter after Sappi Ltd repaid early its four-year debt of EUR 220million to M-real. The repayment price was 86.5% of the nominal value of thevendor notes, or approximately EUR 190 million.The result before tax was EUR -329 million (-233), and taxes, including changesin deferred tax liabilities, totalled EUR 10 million (60). The result forcontinuing operations was EUR -318 million (-172), the result for discontinuedoperations was EUR -23 million (-338) and the result for the financial periodwas EUR -342 million(-511).Of the period's results, EUR -116 million (-213) was attributable to parentcompany members and EUR -226 million (-297) to minority interests.The Group's return on capital employed for continuing operations was -3.3%(0.5), and the return on equity was -20.0% (-8.4). Excluding non-recurringitems, the return on capital employed was -1.4% (1.3) and the return on equitywas -13.4% (-6.4).Balance sheet and financingMets?itto Group's total liquidity was EUR 1.4 billion (1.8) at the end ofDecember. Of this, EUR 0.6 billion (0.6) was in liquid assets and investments,and EUR 0.8 billion (1.2) was in off-balance-sheet binding credit facilities. Inaddition, the Group can satisfy short-term financial needs with non-bindingcommercial paper schemes in Finland and abroad, as well as with credit limitsamounting to approximately EUR 0.5 billion.The Group's equity ratio was 24.5% at year's end and net gearing totalled 157%(26.0% and 149%, respectively). Interest-bearing net liabilities stood at EUR2,203 million (2,666). The equity ratio of the parent company, Mets?ittoCooperative, was 57.2% at the end of December and the net gearing ratio was 50%(54.6% and 45%, respectively).During the year, members' capital decreased by EUR 56.6 million. The actualmembers' capital decreased by EUR 1.5 million and the additional capital A byEUR 57.3 million. The additional members' capital B increased by EUR 2.1million. Based on notifications received by the end of 2009, EUR 58.2 (102.6)million of the additional members' capital will fall due on 1 July 2010. At theend of December, Mets?itto Cooperative had 127,158 (129,267) members.The change in the fair value of investments available for sale in 2009 wasapproximately EUR -103 million, based mainly on the decrease in the fair valueof the Pohjolan Voima shares. The change in the fair value of the shares relatesmainly to the decrease of the 12-month moving average value of Nord Poolelectricity futures used in the valuation.In connection with the change in the ownership structure of Mets?otnia,goodwill of EUR 359 million was recognised in Mets?itto Group's balance sheet.The shareholder agreement also includes an obligation to redeem Mets?otniashares, ending when UPM's holding decreases to below 11%. The liability arisingfrom the redemption obligation and the corresponding increase in holdings havebeen taken into account in the consolidated financial statements.In December 2009, M-real decided to exercise its right to partial earlyredemption of its senior floating rate notes maturing on 15 December 2010. Theoutstanding nominal amount before the redemption is approximately EUR 340million. The total par value of redemption is EUR 250 million. The earlyredemption took place on 25 January 2010 and the redemption price was 100 percent plus accrued and unpaid interest up to, but not including, the redemptiondate, according to the terms of the notes.The main reason for the early redemption is M-real's strong liquidity position.The redemption will reduce M-real's net financing costs in 2010 by approximatelyEUR 11 million.PersonnelThe Group employed an average of 15,230 people (17,538) in 2009. At the end ofDecember, the number of personnel in the Group was 14,242 (16,729). Divestmentsof Vapo and the operations in Uruguay decreased the number of personnel byapproximately 1,100 people. On the other hand, the change in the consolidationmethod of Mets?otnia increased the number of personnel in the Group by some520 people. The parent company, Mets?itto Cooperative, had a headcount of2,871 people (3,217) at the end of December.InvestmentsMets?itto Group's capital expenditure in tangible assets totalled EUR 152million (268) in 2009. Acquisitions totalled EUR 497 million (4) of which mostrelated to the ownership arrangements of Mets?otnia.Divestment of VapoOn 5 May 2009, Mets?itto Group agreed to sell its entire holding (49.9%) inVapo to a Finnish consortium led by EPV Energy. The deal was concluded on 24June 2009 and amounted to EUR 165 million for which the parent company,Mets?itto Cooperative, recorded a sales gain of EUR 27.3 million. The salesgain of Mets?itto Group was EUR 8.0 million.Structural changes in 2009Mets?otniaMets?otnia and its shareholders signed a letter of intent regarding the newownership structure of Mets?otnia and the divestment of the operations inUruguay to UPM-Kymmene Corporation on 15 July 2009. The agreement was signed on22 October 2009, and the arrangement was concluded on 8 December 2009.In connection with the transaction, Mets?itto Cooperative's shareholding inMets?otnia increased from 23% to 53%, M-real's holding remained at 30% andUPM's holding decreased from 47% to 17%.As part of the transaction, Mets?otnia distributed EUR 999 million to itsshareholders as refunds of capital and dividends, and repurchased its own sharesfrom UPM for EUR 168 million. The payments took place mainly using the assetsreceived from the divestment of the operations in Uruguay. In addition,Mets?otnia sold 77% of its shares in Pohjolan Voima Oy and recognised salesgains of approximately EUR 60 million for the sale.The cooperation agreements remained, in their essential parts, in effect withoutchanges after the transaction, and Mets?otnia will continue to act as a saleschannel for the market pulp of both UPM and M-real.Mets?otnia is treated as an associated company in M-real's consolidatedfinancial statements and as a subsidiary in Mets?itto's consolidatedstatements, effective from 8 December 2009.Mets?itto estimated the financial impact of the arrangement in its release on22 October 2009. The financial impact recognised in the financial statements2009 differs slightly from that forecast in the release. The arrangementincreased Mets?itto Cooperative's members' funds by approximately EUR 185million and Mets?itto Group's members' funds by approximately EUR 250 million.The arrangement has a slightly positive effect on the equity ratio of the parentcompany, Mets?itto Cooperative, and a slightly negative effect on its netgearing ratio. The arrangement has a positive impact on the equity ratio andgearing of Mets?itto Group.M-realIn February 2009, M-real launched a new profit improvement programme with anannual target of EUR 80 million. The improvement actions concerned the businessareas and streamlining the support functions to reflect the changed companystructure. The full annual effect of the programme will be visible from 2011.In addition, a separate approximately EUR 60 million programme to improve the2009 cash flow was launched in February. The actions included, for example, areduction in net working capital and cuts in investments.Both programmes proceeded better than expected, and therefore the target of theprofit improvement programme was increased from EUR 80 million to EUR 90million, and the target of the cash flow improvement programme from EUR 60million to EUR 80 million in October 2009.In 2008, M-real announced it was planning the discontinuation of standard coatedfine paper production at the Hallein and Gohrsm? mills based on earlierexamined strategic options. Both mills have been making loss for a long time. AtHallein, paper production was discontinued at the end of April 2009, and at theGohrsm? mill in Germany, standard coated fine paper production was alsodiscontinued in April. At Gohrsm?, the production of speciality papers aswell as uncoated fine paper reels and folio sheets has been expanded. Exploringvarious future options for the Hallein pulp mill continues.In December 2009, M-real announced the reorganisation of the M-real Zandersmills at Gohrsm? and Reflex and plans to close down two of the four papermachines at the Reflex mill. The closure would decrease the annual productioncapacity by approximately 80,000 tonnes. In addition, the transfer of theproduction of carbonless paper to the Gohrsm? mill has been planned. Thenegotiations have begun in 2010, and it is expected that the measures will beimplemented by the end of the first half of the year. These measures areexpected to improve the result by approximately EUR 18 million annually.M-real also announced planned profit improvement measures, the most significantof which are the permanent closure of the Alizay pulp mill in France, aninvestment of EUR 22 million to improve the energy efficiency of the Husum millin Sweden, and a EUR 20 million internal profit improvement programme.The Alizay pulp mill has for a long time been unprofitable and the pulp qualityis not fully in line with market requirements. The pulp mill has beentemporarily shut down since March 2009. As a result of the possible closure ofthe mill, the result includes non-recurring items amounting to EUR 48 million ascost provisions and write-downs.The planned measures announced in December are expected to improve M-real'sannual operating result by EUR 80 million with full effect from 2011 onwards.The result improvement in 2010 is expected to be EUR 40 million.M-real's structural change from a paper company to become more clearly apackaging material producer has proceeded according to plans. The strategicreview of the paper businesses continues.Business areasWood SupplyWood Supply's sales totalled EUR 1,101 million (1,734) in 2009 and operatingprofit was EUR -9 million (30). Wood Supply Finland accounted for EUR 828million (1,188) of the sales and EUR -14 million (25) of the operating result.The operating result for 2009 includes a non-recurring expense item of EUR 21million (+2) due to an infringement fine imposed by the Market Court.The most significant reason for the decline in sales and operating result yearon year was that the delivery volumes remained clearly below the level of 2008.Mets?itto Wood Supply supplied 24 million cubic metres (32) of wood to itscustomers, approximately 70% of it acquired in Finland, mainly from members ofMets?itto Cooperative.During the first half of the year, both mills and sawmills curtailed production,which resulted in the demand for wood being lower than normal. Wood supplyremained low as well. The price of wood decreased during the first months of theyear, but began to steady from May. Log prices recovered to a slight increasetowards the end of the year. The wood trade picked up during the final months ofthe year, especially due to forest owners taking advantage of the 50% tax reliefon wood trade income offered by the Finnish state.Purchases and harvesting of pulpwood had to be restricted as a result of thestrong production curtailments during the first months of the year. During thespring and summer, the wood supply organisation in Finland was adjusted to themarket conditions through temporary layoffs and other measures. The wood supplyorganisation in Northern Finland was changed to better match the decreaseddelivery volumes of wood in the area.Mets?itto's purchases from privately owned forests totalled, including forestenergy, over 9 million cubic metres. Purchases focused on softwood and forestenergy. The demand for pulpwood also picked up towards the end of the year,especially for birch pulpwood. In order to speed up the roundwood trade,owner-members were paid a double bonus on wood from renewal stands marked forcutting during the first months of the year and early autumn. A campaign aimedat enhancing the procurement of forest energy got underway rapidly bringing goodresults, especially in the field of small diameter energy wood. During thereview year, Mets?itto made significant agreements on the delivery of forestenergy and forest industry by-products to major energy plants.In the Baltics, the trade of wood from privately owned forests was almost at astandstill, and most of the wood was purchased from state-owned forests. InRussia, the wood supply at the Mets?otnia Svir Timber sawmill could be handledin spite of a shortage of logs. Imports to Finland and Sweden decreasedconsiderably from both regions. Mainly pulpwood and wood chips from the fellingsof Mets?itto-owned companies were imported from Russia, totalling 0.9 millioncubic metres. Streamlining of the operations of the wood supply organisationscontinued in both the Baltics and Russia.In Sweden and Central Europe, the first half of the year were quiet due to highstock levels and production curtailments. The demand for wood increased duringthe latter half of the year, and prices of both roundwood and pulpwood began toincrease.Mets?itto has been strongly developing services for all phases of forestownership for the last few years. A revised bonus system was adopted at thebeginning of the review year, and Mets?ri, an offering of Mets?itto'sservices, was introduced to owner-members towards the end of the year. Newmember services include a generational change service and a VAT account.As of the beginning of 2010, Mets?itto Wood Supply will be organised into fourbusiness lines: Wood Supply Finland, International Wood Supply, Wood Energy andForestry Services.Wood Products IndustryThe sales of Mets?itto Wood Products Industry amounted to EUR 806 million(1,162), while the operating result was EUR -47 million (-74). The operatingresult includes EUR 6 million (21) of non-recurring expenses.The operating result was particularly burdened by weak demand, low prices forsawn timber and the high price of wood raw material acquired during the previousyear. In addition to sawn goods, restrictions had to be imposed on processedsawn goods, plywood and engineered wood products. However, the loss could bedecreased significantly due to the cost saving measures.Demand was weak in the first part of the year, which resulted in thecontinuation of the oversupply situation and a decrease in product prices. Atthe same time, raw material costs were too high compared to the prices of thefinal products. During the latter half of the year, production curtailments andcustomers' decreased stock levels resulted in a slight recovery in demand andincreased price level.Production was adjusted to the weakened demand by discontinuing the operationsof the Teuva sawmill and suspending production at the Kyr?ski and Karihaarasawmills. Upgrading operations in Kaskinen were reduced due to the contractmanufacturing of consumer goods aimed at the United Kingdom DIY market beingtransferred to the UK. Production was curtailed at all sawmills in operationduring the latter half of the year due to poor availability of competitivelypriced wood raw material.The Building Solutions business line focused on developing energy-efficientconstruction and participated in, for example, the development of theKerto-framed passive roof element and a multi-storey building system comprisingwooden prefabricated elements. In addition, the Kerto-Kate base plate waslaunched on the market, and the Green Store concept based on Kerto and glulamfor eco-efficient construction of commercial and office buildings was launchedfor sale in the United Kingdom.The operating environment of the industrial customer segment was characterisedby rapid cuts in production. Profitability could be maintained and market sharecould be increased with new speciality products and tailored components. Thedemand and prices for the products of the Plywood business line's new Suolahtiupgrading unit in particular have developed favourably.In the consumer and retail segment, sales remained at the previous year's leveland profitability improved slightly compared to the previous year. The Upgradingand Distribution business line continued the development of products for homeand garden and related services in the United Kingdom and France.Wood Product Industry continued to centralise its operations by divesting theblockboard mill in Comanesti, Romania, to the Romanian subsidiaries of theAustrian company Holzindustrie Schweighofer. The transaction is subject toapproval by the Romanian competition authorities.PulpThe sales of Mets?otnia's continuing operations were EUR 886 million (1,184)and the operating result including non-recurring items amounted to EUR -107million (36). The operating result was burdened by the low price of pulp and theprice of wood raw material remaining high during the financial period. Theclosure of the Kaskinen mill resulted in non-recurring items of EUR -75 million.In addition, EUR -2 million of other non-recurring items was recognised in theperiod.The US dollar-denominated price of pulp remained low during the first half ofthe review period. During the latter half of the year, prices increased by anaverage of 25%-40% in all types compared to the first half of the year.During the year, approximately 2.4 million tonnes of production capacity wasclosed down. Production units have been closed down in China, North America andEurope. However, towards the end of the year, production units that had alreadybeen closed down were reopened in Canada and the USA. The production volume ofMets?otnia's continuing operations was 1,959,000 tonnes (2,363,000) of pulp.The financial position and liquidity of Mets?otnia continued to be good. Atthe end of the year, the company had a total of EUR 175 million (304) of liquidassets and unutilised credit facilities. Its equity ratio was 46% (64) at theend of the period under review, and the net gearing ratio was 72% (35).Pulp Industry (Mets?otnia) has been consolidated in the financial statementsof Mets?itto Group as a subsidiary as of 8 December 2009. Before that, 53% ofMets?otnia had been consolidated using the proportional consolidation method(M-real 30% and Mets?itto 23%).Mets?otnia has processed the business operations in Uruguay as discontinuedoperations in accordance with the IFRS 5 standard. Thus, the business operationsin Uruguay are not included in the result figures presented above. Theoperations in Uruguay have not been a separate segment in terms of Mets?ittoand M-real, so the business operations in Uruguay have been reported ascontinuing operations in terms of these groups.Board and PaperThe sales of Board and Paper totalled EUR 2,432 million (3,236), and theoperating result excluding non-recurring items was EUR -150 million (-35).The operating result excluding non-recurring items decreased from the previousyear due to the drop in delivery volumes following weaker demand and a decreasein the average selling prices of office papers. The result was improved by priceincreases in boards and cost savings.M-real's non-recurring items in January-December totalled EUR -117 million net(-26). Of the non-recurring items, EUR 58 million was booked inJanuary-September, and of these EUR 22 million was related to the closure of theMets?otnia Kaskinen mill, EUR 28 million to the closure of the Hallein papermill and EUR 8 million to various profit improvement measures and costprovisions.In the fourth quarter, M-real booked non-recurring items of EUR -59 million net.The non-recurring items included EUR 113 million of impairment losses, EUR 48million of write-downs and cost provisions related to the plans to permanentlyclose down the Alizay pulp mill, EUR 13 million of cost provisions related tovarious profit improvement programmes and EUR 19 million of other non-recurringexpense items. Non-recurring income totalled EUR 134 million, related to thereorganisation of Mets?otnia's ownership.The operating result including non-recurring items was EUR -267 million (-61).Net interest and other financial expenses totalled EUR 80 million (155), incomefrom associates was EUR -16 million (-1) and net exchange gains and lossesbooked as financial items were EUR 5 million (13).The financial income of the review period includes a profit of about EUR 31million from repurchases of a EUR 400 million bond due in December 2010. A lossof approximately EUR 30 million has been booked in the financing expenses due tothe premature repayment of the bond issued to Sappi. Results from associatesinclude a EUR 11 million non-recurring expense item related to the sale ofMyllykoski Paper's Sunila shares.The result before tax was EUR -358 million (-204), earnings per share fromcontinuing operations were EUR -1.02 (-0.55) and the return on capital employedwas -8.9% (-1.3). Excluding non-recurring items, the result before taxes was EUR-230 million (-178), earnings per share were EUR -0.66 (-0.48) and the return oncapital employed was -4.5% (-0.5).At the end of December, M-real's equity ratio was 29.6% and net gearing amountedto 84% (30.8% and 90%, respectively). Some of M-real's loan agreements set a120% limit on the company's net gearing ratio and a 30% limit on the equityratio. At year end, net gearing calculated as defined in the loan agreements wasapproximately 63% and the equity ratio was about 35%.Tissue and Cooking PapersSales of Mets?issue, which produces tissue and cooking papers, totalled EUR890 million (930), and its operating result was EUR 93 million (42). Sales weredown some four per cent year-on-year due to changes in exchange rates and lowersales volumes. The sales volumes of the company's own brands, especially Lambiand Serla, increased. Sales volumes of large-scale consumer operations improvedduring the latter half of the year following softer demand in the first half,which was due, for instance, to the increased demand for hygiene products alongwith the spread of the H1N1 virus.Pulp costs increased during the second half of the year and were 25% higher atyear end than in late spring. Prices of recycled fibre have remained morestable, but its availability has worsened.Mets?issue launched several new products and product solutions during theyear, such as the design patterned Lambi Limited Collection product concept forconsumers and the Katrin hand care programme, special towels and dispensers forlarge-scale consumers. In addition, the new SAGA brand was launched in theautumn, used for selling and marketing cooking and baking products forhouseholds, cooking professionals and converters alike. The development of theSerla, Mola and Tento brands was also continued.It was decided to rebuild paper machine 10 at the M?t?ill. The investmentwill be carried out in the first half of 2010.In the review year, Mets?issue continued measures to improve energyefficiency. Energy efficiency was audited in Finland and Germany, and thecompanies in both countries were awarded energy efficiency certificates.In September, Mets?issue streamlined its operations by moving from fivebusiness lines to three. After the reorganisations, the lines are Consumer,Away-from-Home (large-scale consumer) and Baking & Cooking. The napkin productcategory will be developed and strengthened further as part of the Consumer andAway-from-Home businesses. The company invested in three napkin machines andassociated printing and packaging lines during the review period.Events after the periodMets?itto announced on 18 January 2010 that it will launch a capital programmewith the purpose of strengthening its equity to correspond to the company'scurrent and future business structure. The assets to be accrued will be mainlyused for financing new business operations.Through the capital programme aimed at owner members, the members can subscribefor A and B additional shares. In addition, the programme includes the removalof the current upper limit for the obligatory shares. Furthermore, Mets?ittointents to issue a new C additional share, on the basis of which the owners can,in addition to any interest, gain additional profit as cash payments, the amountof which depends on the rate development of M-real Corporation's B share on theHelsinki Stock Exchange. Mets?itto members who own A and B additional sharesor subscribe for them during the programme are entitled to subscriptions of Cadditional share. The terms and conditions of C additional shares are otherwiseidentical to the current B additional shares, and the same annual interest willbe paid on them as on the B additional shares.The Supervisory Board approved the changes in rules required to execute thecapital programme in its meeting on 18 January 2010 and presented them to theRepresentative Council for approval. The Board of Directors will decide on thelaunch of the programme, its exact starting date, and the subscription periodsand terms during the first quarter in 2010, following the meeting of theRepresentative Council.Risks and uncertaintiesThe estimates and statements in this Financial Statements Bulletin are based oncurrent plans and estimates. They involve risks and uncertainties that may causethe results to differ from those expressed in such statements. In the shortterm, the price of and demand for end products, raw material costs, energyprices and the exchange rate development of the euro have an effect on theresults of Mets?itto Group.The risks related to the Group's business have been explained more extensivelyin Mets?itto Group's Annual Report for 2008.Near-term outlookWood orders for 2010 by Wood Supply customers are close to the normal level,which translates into procurement of considerably larger amounts of wood than in2009. In Finland, wood procurement is supported by a 25% tax relief on woodtrade income, which is valid for sales made by the end of 2010.Wood Products Industry will continue to implement its strategy aiming toincrease processing value and invest in customer-oriented development ofproducts and services. Recovery is expected in the construction market duringthe year, but demand is likely to remain below the normal level. DIY tradevolumes are also expected to increase.The price of pulp has increased further in January, and the pulp market islikely to remain strong, at least for the next few months. Increasing worldmarket prices have led to a situation in which pulp mills that have already beenclosed down have been reopened. This has increased supply and might have anegative impact on the development of pulp prices.The demand for both board and uncoated fine paper is expected to remainfavourable during the first quarter. The demand for speciality papers continuesto be below the normal level, but demand is expected to improve during the firsthalf of the year. Average prices of folding boxboard and liners are experiencinga slight increase as a result of price increase measures. M-real hasadditionally announced price increases of 8% in all main markets. The priceincreases will take effect in March. Prices of speciality papers have remainedstable, and no significant changes in average prices are expected.M-real's first-quarter operating result excluding non-recurring items isexpected to be better than that of the fourth quarter of 2009.The demand for tissue and cooking papers is expected to remain relatively steadyalso during 2010. However, raw material prices and transport costs are expectedto continue to increase. Mets?issue is now seeking growth after significantstreamlining efforts.Mets?itto Group's operating result excluding non-recurring items becamepositive during the third quarter of the year. The operating result for thefourth quarter was better than expected, and no changes that would have anegative impact on profitability have taken place in the market this year.Mets?itto estimates that the favourable development will continue in the firstquarter and that the operating result excluding non-recurring items will bebetter than the previous quarter.Proposal for interest on members' capitalMets?itto Cooperative's Board of Directors has decided to propose to theSupervisory Board that, for 2009, interest of 5.5% (5.5 for 2008) be paid forthe statutory capital invested by its members. Interest of 5.0% (5.0) isproposed for additional members' capital A, and interest of 4.5% (4.5) foradditional members' capital B.The proposal of the Board of Directors will be dealt with in March byMets?itto Cooperative's Supervisory Board, which, in turn, will make aproposal on the interest on members' capital to the Representative Councilmeeting in May.Espoo, 4 February 2010Mets?itto GroupBoard of DirectorsFurther information:Hannu Anttila, acting Group CFO, Mets?itto Group, tel. +358 10 465 5111Anne-Mari Achr? Group CCO, Mets?itto Group, tel. +358 10 465 4541UnauditedMETS?IITTO GROUP Condensed consolidated statement 2009 2008 2009 2008 2007 of comprehensive income, EUR mill. 1-12 1-12 Change Q4 Q4 1-12 Continuing operations Sales 4 837 6 434 -1 597 1 190 1 453 6 797 Other operating income 353 239 114 237 23 92 Operating expenses -4 858 -6 189 1 331 -1 185 -1 487 -6 256 Depreciation and impairment losses -501 -482 -19 -224 -195 -589 Operating result -169 2 -171 18 -206 44 Share of results in associated -16 6 -22 -4 -5 12 companies Exchange gains and losses 2 19 -16 2 18 5 Other net financial items -147 -260 113 -34 -84 -220 Result before income tax -329 -233 -96 -18 -277 -160 Income tax 10 60 -50 -9 66 -24 Result for the period from continuing operations -318 -172 -146 -27 -211 -183 Discontinued operations Result from discontinued operations -23 -338 315 -9 -62 -27 Result for the period -342 -511 169 -36 -273 -211 Other comprehensive income Cash flow hedges 35 -55 90 11 -44 7 Available for sale financial assets -103 97 -200 -2 21 8 Currency translation differences -15 13 -28 10 -6 -11 Other items 0 -1 1 0 0 -5 Income tax relating to components of other comprehensive income 23 -16 39 0 0 -13 Other comprehensive income, net of tax -60 39 -99 18 -29 -14 Total comprehensive income for the period -402 -472 70 -18 -302 -225 Result attributable to: Members of parent company -116 -213 97 24 -140 -9 Minority interest -226 -297 71 -60 -133 -202 -342 -511 169 -36 -273 -211 Total comprehensive income attributable to: Members of parent company -150 -199 50 28 -160 -18 Minority interest -252 -272 20 -46 -142 -207 -402 -472 70 -18 -302 -225Unaudited Condensed consolidated balance sheet 2009 2008 2007 31.12. 31.12. 31.12. ASSETS Non-current Goodwill 493 176 319 Other intangible assets 245 88 70 Tangible assets 2 428 2 958 4 021 Biological assets 7 103 83 Investments in associated companies 98 139 133 Available for sale investments 356 493 373 Non-current financial assets 11 234 44 Deferred tax receivables 58 61 46 3 696 4 252 5 090 Current Inventories 669 943 1 132 Accounts receivables and other receivables 799 1 085 1 385 Cash and cash equivalents 558 619 428 2 026 2 647 2 945 Assets classified as held for sale 9 - - Total assets 5 730 6 899 8 035 MEMBERS' FUNDS AND LIABILITIES Members' funds Members' funds 927 1 104 1 328 Minority interest 471 682 978 1 399 1 786 2 306 Non-current liabilities Deferred tax liabilities 382 328 404 Post-employment benefit obligations 122 131 195 Provisions 128 111 83 Borrowings 1 976 2 854 3 011 Other liabilities 115 26 50 2 722 3 449 3 742 Current liabilities Current borrowings 798 690 747 Accounts payable and other liabilities 806 974 1 240 1 604 1 664 1 987 Liabilities classified as held for sale 6 - - Total liabilities 4 331 5 113 5 729 Total members' funds and liabilities 5 730 6 899 8 035UnauditedEquity attributable to members of parent company Change in members' Fair Re- funds Mem- Trans- value tained bers' Share lation and earn- EUR mill. capital pre- differ- other ings Minor- mium ences reserves Total ity Total account inte- rest Members' funds 574 30 -7 148 583 1 328 978 2 306 1.1.2008 Dividends paid -35 -35 -13 -48 Change in members' 11 11 11 capital Change in share 0 0 premium account Change in fair 0 0 value reserve Transfer from unrestricted 6 -6 0 0 to restricted equity Business 0 -10 -10 arrangements Total comprehensive income 3 12 -214 -199 -272 -472 for the period Members' funds 585 30 -5 165 329 1 104 682 1 786 31.12.2008 Members' funds 585 30 -5 165 329 1 104 682 1 786 1.1.2009 Dividends paid -29 -29 -1 -30 Change in members' -101 -101 -101 capital Change in share 0 0 premium account Change in fair 0 0 value reserve Transfer from unrestricted 0 0 to restricted equity Business 20 82 102 44 146 arrangements Total comprehensive income -7 -27 -116 -150 -252 -402 for the period Members' funds 484 30 9 221 184 927 471 1 399 31.12.2009Unaudited Condensed consolidated cash flow statement 2009 2008 2007 1-12 1-12 1-12 Result for the period -342 -511 -211 Total adjustments 469 832 857 Change in working capital 231 88 -34 Cash flow arising from operations 359 410 612 Net financial items -84 -239 -265 Income taxes paid 0 -58 -78 Net cash flow arising from operating activities 275 113 270 Acquisitions -497 -4 -45 Investments in tangible and intangible assets -152 -268 -447 Divestments of assets and other 940 511 447 Net cash flow arising from investing activities 209 239 -45 Change in members' funds -57 -1 29 Change in long-term loans and other financial items -529 -101 -19 Dividends paid -40 -55 -51 Net cash flow arising from financing activities -544 -157 -41 Changes in cash and cash equivalents -60 195 184 Cash and cash equivalents at beginning of period 619 428 246 Translation difference -1 -4 -3 Changes in cash and cash equivalents -60 195 184 Cash and cash equivalents in assets classified as held for sale -1 - - Cash and cash equivalents at end of period 558 619 428UnauditedBUSINESS SEGMENTS Wood Supply 1-12/09 1-12/08 Q4/09 Q4/08 Sales 1 101 1 734 292 362 EBITDA -5 35 -16 5 - " -, excl. non-recurring items 16 33 5 4 Depreciation and impairment -4 -5 -1 -1 Operating result -9 30 -17 4 - " -, excl. non-recurring items 12 28 4 3 Capital expenditure 2 4 1 0 Personnel at end of period 945 1 140 945 1 140 Wood Products Industry 1-12/09 1-12/08 Q4/09 Q4/08 Sales 806 1 162 193 239 EBITDA -2 -18 7 -30 - " -, excl. non-recurring items -2 -11 7 -23 Depreciation and impairment -45 -57 -16 -25 Operating result -47 -74 -9 -55 - " -, excl. non-recurring items -41 -53 -3 -34 Capital expenditure 10 36 3 7 Personnel at end of period 3 758 4 199 3 758 4 199 Pulp Industry 1-12/09 1-12/08 Q4/09 Q4/08 Sales 1195 1 591 297 359 EBITDA 366 347 378 23 - " -, excl. non-recurring items 71 347 67 23 Depreciation and impairment -173 -138 -23 -36 Operating result 193 209 355 -13 - " -, excl. non-recurring items -43 209 44 -13 Capital expenditure 53 99 7 21 Personnel at end of period 1 106 1 815 1 106 1 815 Board and Paper Industry 1-12/09 1-12/08 Q4/09 Q4/08 Sales 2 432 3 236 606 722 EBITDA 88 254 132 -18 - " -, excl. non-recurring items 44 192 51 4 Depreciation and impairment -356 -315 -185 -143 Operating result -267 -61 -52 -161 - " -, excl. non-recurring items -150 -35 7 -51 Capital expenditure 73 128 18 39 Personnel at end of period 4 903 6 546 4 903 6 546Unaudited Tissue and Cooking Papers 1-12/09 1-12/08 Q4/09 Q4/08 Sales 890 930 229 234 EBITDA 135 98 31 24 - " -, excl. non-recurring items 135 99 31 24 Depreciation and impairment -42 -56 -11 -14 Operating result 93 42 21 10 - " -, excl. non-recurring items 93 43 21 10 Capital expenditure 35 33 17 16 Personnel at end of period 3 152 3 222 3 152 3 222 Other operations 1-12/09 1-12/08 Q4/09 Q4/08 Sales 170 328 4 90 EBITDA 69 29 21 5 - " -, excl. non-recurring items 21 24 0 5 Depreciation and impairment -11 -20 0 -5 Operating result 59 9 20 -1 - " -, excl. non-recurring items 11 4 -1 -1 Capital expenditure 20 44 0 11 Personnel at end of period 378 1 204 378 1 204Other operations include Vapo Group (49,9%) until June 24, 2009 andMets?itto's service andholding functions. Internal sales and eliminations 1-12/09 1-12/08 Q4/09 Q4/08 Sales -1 758 -2 547 -431 -553 EBITDA -319 -261 -313 -18 - " -, excl. non-recurring items -40 -259 -40 -18 Depreciation and impairment 129 109 12 28 Operating result -190 -152 -300 10 - " -, excl. non-recurring items 45 -150 -27 10 Mets?itto Group 1-12/09 1-12/08 Q4/09 Q4/08 Sales 4 837 6 434 1 190 1 453 EBITDA 332 484 242 -10 - " -, excl. non-recurring items 246 425 121 18 Depreciation and impairment -501 -482 -224 -195 Operating result -169 2 18 -206 - " -, excl. non-recurring items -75 45 44 -75 Capital expenditure 152 268 40 78 Personnel at end of period 14 242 16 729 14 242 16 729EBITDA = Operating result before depreciation and impairment lossesUnaudited Quarterly data 2009 2009 2009 2009 2008 2008 2008 2008 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Sales Wood Supply 292 232 251 327 362 412 474 487 Wood Products Industry 193 188 224 202 239 279 329 315 Pulp Industry 297 313 282 303 359 421 413 398 Board and Paper Industry 606 618 585 623 722 826 829 859 Tissue and Cooking Papers 229 226 217 218 234 235 231 230 Other operations 4 3 72 92 90 62 83 92 Internal sales and -431 -425 -418 -487 -553 -640 -683 -671 eliminations Group sales 1 190 1 155 1 213 1 278 1 453 1 595 1 676 1 710 Operating result Wood Supply -17 -1 4 5 4 4 12 10 Wood Products Industry -9 -3 -10 -25 -55 -16 -1 -2 Pulp Industry 355 2 -42 -122 -13 102 44 75 Board and Paper Industry -52 -24 -73 -117 -161 -8 71 37 Tissue and Cooking Papers 21 31 22 19 10 13 11 9 Other operations 20 2 27 10 -1 3 1 6 Eliminations -300 0 16 94 10 -78 -32 -52 Group operating result 18 7 -56 -137 -206 19 105 84 - % of sales 1.5 0.6 -4.6 -10.7 -14.2 1.2 6.3 4.9 Share of results in associated companies -4 -1 -8 -2 -6 8 2 2 Exchange gains and losses 2 4 -1 -2 18 0 -2 2 Other net financial items -34 -63 -30 -20 -84 -63 -51 -62 Result before income tax -18 -53 -95 -163 -277 -35 54 26 Income tax -9 -6 7 19 66 2 -1 -7 Result for the period from continuing operations -27 -59 -88 -144 -211 -33 53 19 Result from discontinued operations -9 -2 -3 -10 -62 -212 -45 -19 Result for the period -36 -61 -91 -153 -273 -245 8 0AcquisitionsOy Mets?otnia Ab, a joint venture included in the Group's Pulp Industrysegment, had a pulp mill and forest assets in Uruguay. Mets?otnia'sshareholders M-real Corporation, UPM-Kymmene Corporation and Mets?ittoCooperative signed an agreement on the sale of the business operations inUruguay to UPM on 22 October 2009. The transaction was concluded on 8 December2009. In connection with it, Mets?itto Cooperative sold UPM a holding of 5.5%in Botnia South America S.A.At the same time, the shares of ownership in Mets?otnia were rearranged.Mets?otnia repurchased 9.2% of its own shares, as a result of whichMets?itto Cooperative's direct ownership increased from 23.0% to 25.3% andM-real's ownership from 30.0% to 33.0%. Mets?itto Cooperative purchased a24.7% share in Mets?otnia from UPM. In addition, Mets?itto Cooperativepurchased a 3.0% share in Mets?otnia from M-real in an intra-groupacquisition.After the arrangement, Mets?itto Cooperative owns 53.01% of Mets?otnia,M-real 30.03% and UPM 16.96%. Mets?otnia's shareholder agreement includes anobligation to redeem Mets?otnia shares, ending when UPM's holding hasdecreased below 11%. The liability arising from the redemption obligation ismeasured at fair value. The corresponding increase in Mets?itto Cooperative'sholding by 5.96% has been taken into account in the consolidated financialstatements.According to a preliminary acquisition cost calculation, the acquisitionsresulted in goodwill of EUR 358.8 million, including the following items: (i)Synergy benefits, 80% of goodwill. The synergy benefits arise from the potentialfor cost savings and improvement of efficiency due to harmonisation, andbenefits of using Mets?otnia's pulpwood in optimising Mets?itto's WoodSupply and Wood Products Industry businesses. (ii) Personnel, 20% of goodwill.The competence of the personnel concerning pulp production and end uses of fibrewill benefit the other business functions of the Group in, e.g., the productionof pulp, paper and board. The personnel's knowledge of the pulp market will aidthe operation of other Group companies in the pulp market as buyers as well assellers. The acquisition cost calculation is preliminary because according toIFRS it is possible to adjust it if additional information is received withinone year from the acquisition date.The other operating expenses of the Group include EUR 2.5 million of costsrelated to this reorganisation as a whole.The result of the Mets?otnia group has been consolidated into Mets?ittoGroup as a joint venture line by line until 7 December 2009 (Mets?ittoCooperative's ownership 23% and M-real's 30%). As a result of the restructuringcarried out at the end of 2009, Mets?otnia became a subsidiary of Mets?ittoCooperative on 8 December 2009. The minority interest is 29.43%. The result forthe financial period of the Mets?otnia group since 8 December 2009 (EUR 3.0million) is included in the Group result for 2009.Mets?itto Group's sales for 2009 would have amounted to EUR 4,644.2 millionand the result for the period before minority interest to EUR -616.9 million,had the acquisition of business operations carried out during the financial yearbeen consolidated into the consolidated financial statements from the beginningof the financial year 2009, taking all the items related to this transaction asa whole into consideration. These figures have been calculated using theaccounting policies applied by the Group and by adjusting the result of thesubsidiary by taking into consideration additional depreciation that would havebeen made had the intangible and tangible assets been measured at fair cost asof 1 January 2009, and the tax effects of such depreciation. Acquisition of Oy Mets?otnia Ab total Fair value Book value EUR mill. measured at before consolidation consolidation-------------------------------------------------------------------------------- Brand (included in intangible assets) 135 Customer relationships (included in intangible 42 assets) Other intangible assets 16 16 Buildings and structures 247 206 Machinery and equipment 516 365 Other tangible assets 22 22 Biological assets 6 6 Long-term financial assets 22 22 Inventories 125 123 Trade and other receivables 126 126 Cash and cash equivalents 9 9-------------------------------------------------------------------------------- Total assets 1 266 895 Deferred tax liabilities 164 68 Retirement benefit obligations 3 3 Provisions 18 18 Financial liabilities 332 332 Trade and other payables 87 87-------------------------------------------------------------------------------- Total liabilities 604 507 Net assets 662 388 Previously owned share of net assets 229 Minority's share of net assets 195 Net assets acquired 238 Acquisition cost 405 Costs directly attributable to the acquisition 4 Redemption of Oy Mets?otnia Ab shares 89 Redemption obligation 99-------------------------------------------------------------------------------- Acquisition cost total 597 Goodwill 359 Cash transaction 498 Assets of subsidiary acquired -9-------------------------------------------------------------------------------- Cash flow on acquisition -489The fair value of the brand identified in the consolidation of businessoperations has been specified based on estimated discounted additional cashflows. The fair value of customer relationships has been specified based on theestimated duration of the customer relationships and discounted net cash flowsfrom existing customer accounts. Tangible assets are measured at fair valuebased on the market prices of corresponding assets, taking into considerationthe age, wear and other similar factors of the acquired assets. Inventories aremeasured at fair value, and the book values of other items substantiallycorrespond to the fair value.Unaudited Change in tangible assets 2009 2008 2007------------------------------------------------------------- Book value at beginning of period 2 958 4 021 4 197 Company acquisitions 472 4 22 Investments 143 255 430 Decrease -772 -686 -72 Assets classified as held for sale -3 - - Depreciation and impairment charges -449 -438 -362 - " - , discontinued operations - -149 -118 Translation differences and other changes 78 -49 -76------------------------------------------------------------- Book value at end of period 2 428 2 958 4 021"Assets classified as held for sale" include the tangible assets of the WoodProducts Industry's blockboard mill in Romania.In 2008 "Depreciation and impairment charges of discontinued operations" includethe depreciation and impairment charges of the Graphic Papers business and in2007 the depreciations of the Map Merchant Group. Commitments Q4/09 Q4/08 Q4/07------------------------------------------------------------- On own behalf (incl. leasing liabilities) 456 318 347 On behalf of associated companies 6 3 3 On behalf of others 4 4 4------------------------------------------------------------- Total 466 325 355 Commitments related to fixed assets Q4/09 Q4/08 Q4/07------------------------------------------------------- Payments due under 1 year 0 0 38 Payments due in subsequent years 1 1 7 Open derivative contracts Q4/09 Q4/08 Q4/07 Interest rate derivatives 831 1 158 1 693 Currency derivatives 1 766 2 346 3 268 Other derivatives 254 232 160--------------------------------------------- Total 2 850 3 735 5 121The market value of open derivative contracts at the end of the review periodwas EUR -28 million (12/08: EUR 33 million). Open derivative contracts alsoinclude closed contracts to a total amount of EUR 537 million (12/08: EUR 787million).Accounting policiesThe Financial Statements Bulletin was prepared in accordance with the IAS 34standard Interim Financial Reporting and the accounting policies presented inMets?itto Group's Annual Report for 2008.The Group has adopted the following standards from the beginning of 2009:IAS 1 (Revised), 'Presentation of Financial Statements'. The revised standard isaimed at improving users' ability to analyse and compare the information givenin financial statements by separating changes in equity of an entity arisingfrom transactions with owners from other changes in equity. Non-owner changes inequity are presented in the statement of comprehensive income.IFRS 8, 'Operating Segments'. The new standard replaces IAS 14. The new standardrequires a 'management approach', under which segment information is presentedon the same basis as that used for internal reporting purposes. The segmentsreported by the Group as from 1 January 2009 are Wood Supply, Wood ProductsIndustry, Pulp Industry, Board and Paper Industry, Tissue and Cooking Papers andOther operations. The figures for the comparative periods have been changedaccording to the new segments.[HUG#1380532] Mets?itto Group Financial Statements 2009: http://hugin.info/137341/R/1380532/340082.pdf
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