INTERIM REPORT January - March 2010

INTERIM REPORT January - March 2010 ■■ Net sales by the Myllykoski Group in January-March 2010 totalled EUR 245 million (EUR 325 million in January-Ma...
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INTERIM REPORT January - March 2010 ■■ Net sales by the Myllykoski Group in January-March 2010 totalled EUR 245 million (EUR 325 million in January-March 2009). ■■ Operating profit for January-March 2010 was EUR 13 million (EUR 8 million). Low paper prices and high raw material costs decreased the profitability. ■■ Total deliveries in January-March 2010 amounted to 408,000 tonnes, which is 14.7% lower than in the corresponding period in 2009. ■■ Production curtailments continued at European mills.

KEY FIGURES Q1/2010 Q1/2009 Net sales €m 245 325 Operating profit (loss) €m 13 8 of net sales % 5.3 2.5 Operating profit (loss) without non-recurring items €m -5 8 of net sales % -2.2 2.5 Profit (Loss) before tax €m 9 -2 Profit (Loss) before tax without non-recurring items €m -9 -2 Profit (Loss) for the period €m 10 -2 Profit (Loss) for the period without non-recurring items €m -7 -2 Return on equity % 10.0 -1.4 Equity ratio % 27.3 27.3 Equity ratio 1) % 31.1 31.4 Gross capital expenditure excluding acquisitions €m 3 7 - of net sales % 1.4 2.0 Personnel, average 2 430 2 932 1) Capital loans included in equity

Preliminary Information 2005

Q1-Q4/2009 1 212 -18 -1.5 10 0.9 -75 -11 -68 -7 -16.1 27.3 31.3 35 2.9 2 744

Interim report January - March 2010

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General review The global economy has begun to recover from the long prevailing crisis. The contraction in GDP has ended in many key markets. Growth is expected to continue, albeit slower than usual and more unevenly among geographic regions. The demand for paper began to grow noticeably in FebruaryMarch 2010. In addition to fine and specialty papers, demand for coated publication papers in particular developed favourably. Although prices for fine and specialty papers increased at the beginning of the year, the effects of growing demand did not yet reflect on the prices of publication papers as hoped. The pulp markets continued to be affected by strong demand from China and the earthquakes in Chile. The prevailing rise in the price of pulp continued in the first quarter of 2010, increasing by more than 10% during this period. The price of long-fibre pulp was USD 890 per tonne at the end of March.

Operations Following the restructuring of operations in 2009, Myllykoski Corporation has switched its financial reporting as of the beginning of 2010 to a single operating segment that includes all Group operations and all Group companies: the European mills MD Albbruck, MD Plattling, Myllykoski Paper (Myllykoski 65%) and Lang Papier, in North America Madison Paper Industries (60%), as well as Myllykoski Sales Network. All Group mills produce wood-containing publication papers, and major operative decisions affecting them are made by the Group's Executive Board. The clear turnaround in paper demand from February onwards was reflected in the improved operating rates and output at all Group mills. Deliveries of all paper grades increased compared to the end of 2009 and the start of 2010. The demand for coated grades in particular increased, but also the situation regarding newsprint, which was expected to be weak, improved.

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Myllykoski Group’s output in January-March 2010 amounted to 431,000 tonnes, which is 12.9% less than in the corresponding period in 2009. However, output was at the same level as in the previous year excluding the figures for the Utzenstorf and Alsip mills, which were sold in 2009. Production was curtailed at European mills for an extended period over the Christmas holidays and did not begin again at some mills until the second week of January. The situation was affected also by the Finnish harbour strike, which continued for over a week in March. As a result of improved demand, PM 10 at MD Plattling, which had been idled since July 2009, was restarted in March also due to technological and production reasons. Magazine grades accounted for 88% and newsprint for 12% of output. Myllykoski expanded its own sales network and opened a sales office in Moscow.

January-March 2010 financial performance and position Myllykoski’s consolidated net sales for January-March 2010 totalled EUR 245 million, which is 24.5% less than in the corresponding period in 2009 (EUR 325 million). The decrease in net sales was due to the sale of the Utzenstorf and Alsip mills in 2009, as well as to low paper prices in the first quarter of 2010. Total deliveries in January-March 2010 amounted to 408,000 tonnes, compared to 479,000 in the corresponding period in 2009. The operating profit was EUR 13 million, which represents 5.3% of net sales. The operating profit for the first three months of 2009 was EUR 8 million. The operating profit for 2010 includes a profit of EUR 18 million from the sale of a hydro power plant in Madison, USA. The operating loss was EUR 5 million without non-recurring items. In addition to low paper prices, the result was weakened by the prices of pulp and recycled fibre, which were significantly higher than in the previous year.

The profit before tax for January-March 2010 amounted to EUR 9 million, compared with a loss of EUR 2 million in January-March 2009. The loss before tax without nonrecurring items for January-March 2010 was EUR 9 million. The profit for January-March 2010 was EUR 10 million, compared with a loss of EUR 2 million in the corresponding period in 2009. The result without non-recurring items was negative, representing a loss of EUR 7 million. The Group’s equity ratio on 31 March 2010 was 27.3%, the same as a year earlier. The equity ratios with the capital loans included in the shareholders' equity were 31.1% and 31.4%. Liquidity remained good. Cash flow generated by operations was EUR -17 million. On 31 March 2010 the company signed an agreement with principle financiers regarding refinancing for 12 months. Negotiations regarding longer term financing will continue in 2010.

Decisions taken by the Annual General Meeting On 11 March 2010, Carl G. Björnberg, Majlen Fazer, Barbara Hisinger-Jägerskiöld, Juhani Mäkinen, Karl Dietrich Seikel, Andreas Tallberg and Dr. Hans Jochen Waitz were re-elected to the Board as well as Fredrik Björnberg until August 26, 2010. Charlotta Björnberg-Paul was elected to the Board as of August 26. Mauri Palvi, Authorised Public Accountant, was elected as Auditor and KPMG Oy Ab as Deputy Auditor for the year 2010. The Annual General Meeting was reconvened on 16 April 2010, at which time it approved the proposal made by the Board of Directors that no dividend will be distributed for 2009.

Investments during the first three months of 2010 totalled EUR 3 million, or 1.4% of net sales.

Outlook for the near future

January-March 2010 financial performance and position compared with October-December 2009

The economic situation in Myllykoski main markets has developed favourably. With the recovery in paper demand, output has also increased. The demand for paper is expected to continue growing during the spring, as a result of which the operating rates for our paper machines are expected to remain good.

Net sales for January-March 2010 (EUR 245 million) were less than net sales for October-December 2009 (EUR 293 million). The operating result for the first quarter of 2010 without nonrecurring items (EUR -5 million) was slightly better than for the fourth quarter of 2009 without non-recurring items (EUR -11 million). Production curtailments were made at Group mills both at the end of 2009 and the beginning of 2010. Paper prices continued to decline in the first months of 2010.

Personnel Negotiations were concluded at Plattling to reduce the number of workplaces by approximately 80. The reduction is being implemented primarily by not renewing the contracts of temporary employees.

Myllykoski has announced increases to the prices of all its publication paper grades as of the beginning of April, and in the current market situation the price level of paper is expected to increase. The prices of fibre raw materials are high, and the price increases are aimed at correcting the current situation. For Myllykoski it remains vital that customers receive reliable deliveries, local service and high-quality products. Myllykoski aims to continue developing its operations in order to achieve higher operating rates and efficiencies, as well as improved profitability through continued profit improvement and savings programmes.

The total number of people employed by Myllykoski Group companies in January-March 2010 averaged 2,430 (2,932 in January-March 2009 and 2,518 in October-December 2009).

Preliminary Information 2005

Interim report January - March 2010

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Financial Information CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

EUR million Q1/2010 Q1/2009 Net sales 245 325 Other operating income 30 7 Change in inventories of finished goods 11 8 Materials -165 -198 Sales and delivery costs -23 -29 Personnel expenses -38 -48 Depreciation, amortisation and impairment charges -22 -26 Other operating charges -26 -29 Share of results of associates 1 -2 Operating profit (loss) 13 8 Financial income 3 3 Financial expenses -6 -12 Exchange-rate differences -1 -1 Net financial items -4 -10 Profit (Loss) before tax 9 -2 Income tax expense 1 0 Profit (Loss) for the period 10 -2 Other comprehensive income: Exchange differences on translating foreign operations 2 1 Available-for-sale investments -8 -1 Cash flow hedges 0 0 Other comprehensive income for the period, net of tax -6 0 Total comprehensive income for the period 4 -2 Profit (Loss) attributable to Equity holders of the parent 3 -3 Non-controlling interests 7 1 10 -2 Total comprehensive income attributable to: Equity holders of the parent -4 -4 Non-controlling interests 8 2 4 -2 Earnings per share, € 41 -35

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Q1-Q4/2009 1 212 53 -25 -711 -112 -181 -108 -144 -2 -18 10 -66 -1 -57 -75 7 -68

-2 12 2 12 -56

-62 -6 -68

-49 -7 -56 -788

CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION EUR million 31 Mar 2010 31 Mar 2009

31 Dec 2009

ASSETS NON-CURRENT ASSETS Property, plant and equipment 804 961 Intangible assets 20 20 Investments in associates 4 26 Available-for-sale investments 46 53 Non-current interest-bearing receivables 97 96 Deferred tax assets 5 6 Other non-current assets 4 4 980 1 166 CURRENT ASSETS Inventories 121 168 Receivables 292 300 Cash and cash equivalents 76 15 489 483 TOTAL ASSETS 1 469 1 649 EQUITY AND LIABILITIES EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE PARENT 361 411 NON-CONTROLLING INTERESTS 39 39 TOTAL EQUITY 400 450 NON-CURRENT LIABILITIES Non-current borrowings *) 242 283 Deferred tax liabilities 82 95 Non-current provisions 86 83 Other non-current liabilities - 2 410 463 CURRENT LIABILITIES Current borrowings *) 473 503 Trade and other payables 182 229 Current provisions 4 4 659 736 TOTAL LIABILITIES 1 069 1 199 TOTAL EQUITY AND LIABILITIES 1 469 1 649 *) Capital loans 57 67

Preliminary Information 2005

821 20 3 56 97 5 3 1 005

105 287 51 443 1 448

365 31 396

263 87 82 0 432

421 193 6 620 1 052 1 448

Interim report January - March 2010

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CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Attributable to equity holders of the parent EUR million Share Retained Translation Available- Cash flow Other Total Non Total capital earnings of foreign for-sale hedges reserves controlling operations investments interests Balance 1 Jan 2009 67 316 9 25 -3 1 415 Total comprehensive income for the period - -3 1 -2 0 - -4 Balance 31 Mar 2009 67 313 10 23 -3 1 411 Balance 1 Jan 2010 67 263 -1 37 -1 0 365 Total comprehensive income for the period - 3 0 -7 0 - -4 Balance 31 Mar 2010 67 266 -1 30 -1 0 361

37

462

2 39

-2 450

31

396

8 39

4 400

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS EUR million Q1/2010 Q1/2009 Q1-Q4/2009 Cash flow from operating activities Profit (Loss) for the period 10 -2 -68 Adjustments to Profit (Loss) for the period  -4 41 179 Change in net working capital  -10 22 73 Cash flow generated by operations -4 61 184 Net financial items -10 -8 -28 Direct taxes paid -3 -2 -3 Net cash provided by operating activities -17 51 153 Cash flow from investing activities Purchase of intangible assets and PPE -4 -6 -28 Proceeds from sale of intangible assets and PPE 22 0 1 Proceeds from sale of subsidiaries, net of cash - - 65 Proceeds from sale of shares and return of equity in associates - 3 3 Other investing cash flow -6 -2 -24 Net cash used in investing activities 12 -5 17 Cash flow from financing activities Proceeds from non-current borrowings - 15 127 Payments of non-current borrowings -15 -63 -302 Change in current borrowings 45 -3 36 Net cash used in financing activities 30 -51 -139 Cash and cash equivalents at the beginning of the year 51 20 20 Change in cash and cash equivalents 25 -5 31 Cash and cash equivalents in the end of the period 76 15 51

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RATIOS Q1/2010 Q4/2009 Q3/2009 Net sales €m 245 293 288 Operating profit (loss) €m 13 -55 0 - without non-recurring items 1) -5 -11 0 of net sales % 5.3 -18.9 -0.1 - without non-recurring items 1) -2.2 -3.7 -0.1 Profit (Loss) before tax €m 9 -74 -3 - without non-recurring items 1) -9 -14 -3 Earnings per share (EPS) € 41 -830 -8 Gross capital expenditure excluding acquisitions €m 3 7 9 - of net sales % 1.4 2.4 3.0 Production 1000 t 431 431 428 Paper deliveries 1000 t 408 469 457

Q2/2009 306 29 13 9.6 4.4 3 7 84

Q1/2009 325 8 8 2.5 2.5 -2 -2 -35

13 4.1 482 467

7 2.0 495 479

Q1/2010 Q1-Q4/2009 Q1-Q3/2009 Q1-Q2/2009 Q1/2009 Operating profit (loss) €m 13 -18 37 38 8 - without non-recurring items 1) -5 10 21 22 8 of net sales % 5.3 -1.5 4.0 6.0 2.5 - without non-recurring items 1) -2.2 0.9 2.3 3.4 2.5 Profit (Loss) before tax €m 9 -75 -2 1 -2 - without non-recurring items 1) -9 -11 2 5 -2 of net sales % 3.7 -6.2 -0.2 0.2 -0.5 - without non-recurring items 1) -3.8 -0.9 0.3 0.8 -0.5 Total balance €m 1 469 1 448 1 500 1 529 1 649 Return on capital employed % 5.7 -0.7 5.0 7.0 3.4 - without non-recurring items 1) -1.0 1.8 3.2 4.4 3.4 Return on equity % 10.0 -16.1 -0.1 0.4 -1.4 - without non-recurring items 1) -7.1 -1.6 1.1 2.2 -1.4 Equity ratio % 27.3 27.3 30.0 29.7 27.3 Equity ratio 2) % 31.1 31.3 34.2 33.8 31.4 Gearing ratio 1.19 1.20 1.15 1.18 1.43 Gearing ratio 2) 0.92 0.93 0.89 0.92 1.11 Earnings per share (EPS) € 41 -788 41 49 -35 Shareholders' equity per share € 4 560 4 613 5 278 5 310 5 185 Interest-bearing net debt €m 477 477 518 536 643 Interest-bearing net debt 2) €m 420 420 456 474 576 Personnel, average 2 430 2 744 2 827 2 927 2 932 1) The non-recurring items consist of items related to the sale of a hydro power plant in Madison, the closing of the MD Dachau mill, the sale of the shares in Sunila, the sale of the Utzenstorf and Alsip mills as well as the impairment charge related to the shares in Pohjolan Voima Oy. 2) Capital loans included in equity. CALCULATION OF KEY INDICATORS Return on capital employed (ROCE) % Profit (Loss) before tax + Interest expenses, Net exchange-rate differences and Other financial expenses Balance sheet total, average - Non-interest-bearing debt and Provisions, average Return on equity (ROE) % Shareholders' equity per share, € Profit (Loss) before tax - Income tax expense Shareholders' equity attributable to equity holders of parent company Shareholders' equity, average Number of shares at year-end Equity ratio % Shareholders' equity Balance sheet total - Advances received Gearing ratio Interest-bearing net debt Shareholders' equity

Earnings per share, € Profit (Loss) of the period attributable to equity holders of parent company Number of shares at year-end

Interest-bearing net debt, €m Interest-bearing debt - Non-current interest bearing loan receivables, Current interest-bearing receivables and funds

Preliminary Information 2005

Interim report January - March 2010

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EY EXCHANGE RATES FOR THE EURO K Closing rate Average rate 31 Mar 2010 31 Dec 2009 31 Mar 2010 31 Dec 2009 USD 1.34790 1.44060 1.38423 1.39480 CAD 1.36870 1.51280 1.44073 1.58500 GBP 0.88980 0.88810 0.88690 0.89094 CHF 1.42760 1.48360 1.46393 1.51000

Changes in property, plant and equipment EUR million Q1/2010 Carrying value at the beginning of the period 821 Additions 2 Decreases -3 Depreciation for the period -20 Translation difference 4 Net carrying amount at the end of the period 804

Commitments and contingencies EUR million 31 Mar 2010 On own behalf 681 On behalf of associates 2 Leases 11 Other long-term delivery contracts to fixed price 411

Open derivative contracts EUR million 31 Mar 2010 31 Mar 2010 31 Mar 2009 Nominal value Fair value Nominal value Interest-rate derivatives 456 -1 879 Currency derivatives 204 -1 227 Commodity derivatives 17 2 16

Q1/2009 979 4 0 -25 3 961

31 Mar 2009 70 5 13 464

31 Mar 2009 Fair value -8 1 0

Related party The "related party" to the Myllykoski Group consists of Associates, Key management including the members of the Group Executive Board and the parent company Board of Directors as well as related party companies in which the owners are principally the same as in Myllykoski Corporation.

EUR million Q1/2010 Non-current interest-bearing receivables from related party 89 Current receivables from related party 75 Current liabilities to related party 50 Sales to related parties 10 Other interest income from related party 2 Purchases from related party -11

Q1/2009 93 49 65 9 3 -28

ACCOUNTING POLICIES The interim financial report has been made in accordance with the accounting policies set out in IAS 34 Interim Financial Reports and in the Group's consolidated Financial Statements for 2009. The interim financial report is unaudited.

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About MYLLYKOSKI MYLLYKOSKI is a family-owned international paper group with manufacturing in Finland, Germany and the United States and sales offices around the world. The Finnish roots of the parent company go back to 1892. MYLLYKOSKI products consist of wood-containing uncoated and coated publication papers, including newsprint. Customers include publishers, printers, and retailers worldwide. MYLLYKOSKI is among the largest publication paper producers in the world. MYLLYKOSKI operates seven paper mills with a total annual capacity of close to 3 million tonnes, including the alliance partner Rhein Papier GmbH. MYLLYKOSKI employs 2,700 people. MYLLYKOSKI is known as a pioneer in using new technologies as well as recycled fibres for paper production. MYLLYKOSKI’s vision is to be the premier publication paper brand recognized for creativity and positive business solutions. For more information please visit www.myllykoski.com.

Preliminary Information 2005

Interim report January - March 2010

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