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Article Excerpt
MIKKO HELANDER, CEO, M-REAL CORPORATION: Ladies and gentlemen, you are very welcome to M-real's webcast. I am Mikko Helander, M-real's CEO. This webcast is also hosted by Seppo Parvi, our CFO, and Juha Laine, M-real's Head of Communication.
Last year was again very busy. Here we have listed all our main developments in 2008. We have seen it in price increases in cartonboards and coated papers, we covered major part of the severe cost inflation with our own profit improvement actions. But at the same time, the result was hit by unfavorable currency rates and weakening pulp cycle.
We divested non-core businesses with over EUR900 million, including the divestment of Graphic Papers to Sappi for EUR750 million. Also on this page, I want to underline that our strategic review of the remaining paper businesses continues as started to improved business environment in (inaudible) and specialty paper business. According to our earlier strategy, we started also the process to end standard wood-free coated production in Gohrsmuhle and Hallein in April 2009.
Last quarter financial figures are hit by weakening economy in all main markets. Sales was EUR722 million, operating results excluding non-recurring items minus EUR51 million, and operating results minus EUR160 million, including all one-time items coming from instrument size and some restructuring provisions. Results before taxes excluding non-recurring items was minus EUR87 million and result before taxes minus EUR197 million.
Full-year figures are also disappointing, mainly due to severe cost inflation, unfavorable exchange rates, and weakening pulp cycle. Full-year sales was EUR3.236 billion. Operating result excluding non-recurring items was minus EUR35 million and operating result including one-time items minus EUR61 million. Results before taxes excluding non-recurring items was minus EUR178 million and result before taxes minus EUR204 million.
M-real had also in 2008 strongly positive net cash flow, EUR282 million, thanks for the divestments. Our main challenge is still that operative cash flow from the businesses is negative. Anyhow, we are very confident that due to divestment of unprofitable coated paper business we are moving to the right direction.
Our covenant [tiering] improved and was 74% at the year end. And also in covenant equity ratio, we had good six percent points headroom. Today, M-real's Board of Directors has decided to propose to the annual general meeting that dividend will not be paid for the financial year 2008.
Consumer packaging business fights strongly against external business challenges. We increased cartonboard prices and improved efficiency everywhere in packaging operations. But it was not enough. Sales was very close same as in previous year, EUR1.061 billion. But EBIT dropped to EUR29 million. And main reasons behind the weakening result were, as mentioned, high cost inflation, lower pulp result, and weak US dollar and British pound.
Profitability improved by cost saving actions and price increases. Also, demand dropped in late 2008, partly due to customer inventory reduction. Now demand is recovering. But we are still behind the 2008 volumes.
We implemented price increase close 10% in cartonboard business, which improves average annual price in 2009. There is still clear need for further cartonboard price increases to cover cost inflation experienced in present years. Timing and tactic will be decided later.
Also, our office paper business suffered, mainly due to weakening pulp result. Completed capacity closures reduced sales to EUR804 million. And operating result dropped to minus EUR29 million. As mentioned, profitability weakened by lower pulp result mainly due to expensive wood raw material and production curtailments. Profitability improved by internal cost saving actions. Office paper sales prices were under pressure. But we succeeded to avoid price erosion.
This was real achievement when we remember that demand weakened in all main markets in 2008. Demand is improving compared to year-end low levels. But outlook for 2009 still remains unclear.
Anyhow, in current market situation, [latent] capacity closures of about 0.5 million tons by M-real and International Paper are improving supply-demand balance in Europe. In office paper, there is still need of new price increases. But near-term increase potential is limited.
M-real's other papers are more and more dedicated to specialty papers when we will complete the process to end heavy loss-making wood-free coated production in Hallein and Gohrsmuhle in April 2009. Other paper sale was EUR622 million. And EBIT improved but remains still negative, minus EUR15 million.
In specialty papers, profitability is better as demand outlook is more stable than in standard coated papers. Once again, I stress that Hallein and Gohrsmuhle standard wood-free coated business has been heavy loss-making for a long time.
In other papers, profitability improved due to all cost saving actions, success of Uruguay pulp mill, and coated paper price increases. Profitability weakened mainly by higher wood and energy costs, strong euro, and lower pulp result.
Market pulp and energy benefit the success of Uruguay pulp mill. Sales was EUR644 million. And operating results improved to EUR31 million. But excluding Uruguay pulp mill, profitability weakened due to increased wood costs, production curtailments, and drop of pulp price in second half of 2008.
Pulp prices are still under pressure as producers' inventory levels are still high. Anyhow, capacity closures will improve the situation. We know from history that pulp prices will increase rapidly when the cycle turns. We might see positive development already before the year end.
After too many difficult years in forest industry, I want to make clear that paperboard making is not (inaudible) business. We are very confident that paper and board production will again be good business in the future. Global demand is increasing steadily over the years. And very good news for us in M-real is that paperboard demand is growing also in the fully developed markets.
Outlook is also improved because the industry is gradually consolidating. This process supports capacity closures and positive price development in non-fast growing markets. And we will see also days when business environment will be back to normal after many difficult years, meaning more favorable currencies, normalizing cost inflation, and also that after this downturn, we have again economic upturn.
In short term, do we like or not, times are difficult due to severe economic downturn. But we have the measures and process to fight against. As many times stated, we are...
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