M-reals quarterly report Q1 2010

May 5, 2010 by timbercommunity

M-real's operating result excluding non-recurring items for the first quarter of 2010 EUR 39 million which was higher than the analysts had predicted. The sales for Q1 was 602 EUR million compared with 623 during 2009. Comparable sales were up 9.8%. But the operating result was 49 million Euro compared with -118 during the same period last year.M-real's structural change from a paper company to become more clearly a packaging material producer has proceeded according to plans.

The CEO Mikko Helander commented the Q1 report: "M-real's result improved further during the first quarter and we achieved a clearly positive net result. However, M-real's structural change is not ready yet; we have several measures underway to improve profitability further. The demand has improved in all of M-real's main products. M-real will increase the prices of all main products to cover increasing fibre costs." 

The company said in an a previous pressrelease  that earnings before tax will be clearly positive. Here was the consensus before Thursday's statement of -5.8 million euros, according to Bloomberg forecast summary. One of the reasons that the result has been better than expected, it is increasing the price of pulp.
M-real's operating result excluding non-recurring items for the first quarter of 2010 EUR 39 million

Result for the first quarter of 2010

• Sales EUR 602 million (Q1/2009: 623)
• Operating result excluding non-recurring items EUR 39 million (-65). Operating result including non-recurring items EUR 49 million (-118).
• Result before taxes excluding non-recurring items EUR 15 million (-62). Result before taxes including non-recurring items EUR 25 million (-115).
• Earnings per share from continuing operations excluding non-recurring items EUR 0.03 (-0.18) and including non-recurring items EUR 0.06 (-0.32).

Events during the first quarter

• In January, M-real made a partial early redemption of its 2010 bonds (originally EUR 400 million) with a nominal value of EUR 250 million.
• M-real booked a positive EUR 12 million non-recurring item related to IT.
• M-real announced price increases in all its main products.

 
 
The demand for uncoated fine paper improved considerably during the first months of the year. The demand seems to continue to be strong during the second quarter. Prices were increased by about 8 per cent in March, and the positive result of this on the result will begin to show by the end of the second quarter. M-real has additionally announced a new price increase of 15 per cent, which is expected to materialise by the end of the second quarter, at least partially. The production of the Alizay paper production will need to be curtailed to some extent due to short fibre pulp availability problems in the coming months. The last phase of the Husum pulp mill recovery boiler investment will be realised during the second quarter, which will result in a negative effect of about EUR 5-6 million for the second quarter.

The demand for speciality papers has improved gradually but is still below normal. The demand is expected to remain unchanged during the second quarter. Due to problems with the availability of short fibre pulp, the delivery volumes of Speciality Papers seem to remain lower in the second quarter than in the first quarter. The prices of speciality papers have been increased depending on the products by 10 per cent at the most, and the positive impact of this on the result will be seen partially in the second quarter and fully from the third quarter onwards.

The availability of pulp has weakened considerably worldwide. This has caused board and paper production curtailments, which seem to continue. The price of pulp is likely to continue increasing. In December 2009, M-real launched a new EUR 80 million profit improvement programme for 2010. The combined profit impact of the new planned measures and the previous years’ profit improvement programmes is expected to be approximately EUR 100 million positive in 2010. In addition to the business areas, the downward development of costs will be seen in Other operations during 2010. The average total production input costs, apart from pulp, are not expected to change materially during 2010. Taking the factors mentioned above into account, M-real’s 2Q 2010 operating result excluding non-recurring items expected to remain about at the same level than in the 1Q 2010. As earlier estimated, M-real’s full year 2010 operating result excluding non-recurring items is expected to be positive.

 
The Consumer Packaging business area's operating result, excluding non-recurring items, improved compared to the previous quarter and totalled EUR 39 million (Q4/2009: 34). The improvement of the result was mainly due to a higher average price as a result of implemented price increases and weakened euro. Demand remained favourable. The delivery volumes were slightly lower due to a delay in deliveries as a result of the strike of Finnish stevedores. The result did not include non-recurring items. The result for the previous quarter included non-recurring items of EUR -1 million.

 
The operating result of the Market Pulp and Energy business area, excluding nonrecurring items, improved compared to the previous quarter and was EUR 9 million (Q4/2009: -9). The result was mainly improved by the higher selling price of pulp. The deliveries of the previous quarter included Metsä-Botnia's external deliveries, but the comparable delivery volume increased.