Myllykoski swings to Q1 net loss of € 18M from profit of €10M a year ago, depleted by increased prices of pulp, recycled fiber, energy; net sales up 9.0% to €267M on higher paper prices
May 5, 2011
The global economy developed favourably at the start of 2011. Industrial output increased significantly. The economic trends within the euro zone continued to be uneven. Germany had strong economic growth, whereas the economic situation in euro zone countries with high levels of debt remained difficult. Economic growth in the euro zone continues to be dependent on exports. Uncertainty in the performance of the global economy was increased by the political crises in the Arab states and the natural disaster in Japan.
The demand for paper was very strong at the end of 2010. Demand fell again during the first weeks of 2011, as customers had increased their stocks in anticipation of price increases. Overall, however, the demand for paper was slightly better than during the corresponding period last year.
Newsprint prices rose by almost 20%. Magazine paper prices increased by approximately 5-8%. At the same time it was possible to shorten contract periods.
The market price for Northern softwood pulp at the end of March was USD 980 per tonne in Europe and slightly higher in North America. The price of recycled fibre continued to be at a high level.
Myllykoski Corporation includes 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.
Production curtailments were made at Myllykoski’s European mills both at the end of 2010 and at the beginning of 2011 due to the weak demand at the start of the year. Further production curtailments were made in February. In March the demand for paper improved, and production and delivery quantities were higher than at the start of the year. At the beginning of this year the availability of wood continued to be challenging in Germany, which was reflected particularly in the operations of MD Plattling.
Myllykoski Group’s output in January-March 2011 amounted to 454,000 tonnes, which is 5.3% higher than in the first quarter of 2010. Magazine grades accounted for 88% and newsprint for 12% of output.
Sale of Myllykoski to UPM
The European Commission’s competition authority has indicated that the agreement between UPM and Myllykoski will proceed to the second, more thorough phase of analysis. The decision is in line with the expectations of both parties.
Myllykoski expects the final implementation of the agreement to move to the third quarter of 2011 due to the slightly later than anticipated starting date of the competition authority’s investigation.
Myllykoski will manage its business operations independently until the merger between UPM and Myllykoski is completed.
January-March 2011 financial performance and position
Myllykoski’s consolidated net sales for January-March 2011 totalled EUR 267 million, which is 9.3% more than in the corresponding period in 2010 (EUR 245 million). The increase in net sales was due to higher paper prices. Total deliveries in January-March 2011 amounted to 412,000 tonnes, compared to 408,000 tonnes in the corresponding period in 2010.
The operating loss was EUR 6 million, which represents -2.1% of net sales. The operating profit for the first three months of 2010 was EUR 13 million, which includes a gain of EUR 18 million from the sale of a hydro power plant in Madison. The operating loss without non-recurring items for January-March 2011 was EUR 8 million. The price trend for paper had a positive impact on the result, whereas the result was correspondingly weakened by the high prices of pulp and recycled fibre, as well as energy.
The loss before tax for January-March 2011 amounted to EUR 24 million, compared with a profit of EUR 9 million in January-March 2010. The loss before tax without non-recurring items for January-March 2011 was EUR 25 million.
The loss for January-March 2011 was EUR 18 million, compared with a profit of EUR 10 million in the corresponding period in 2010. The result without non-recurring items for January-March 2011 was negative, representing a loss of EUR 20 million. The Group’s equity ratio on 31 March 2011 was 19.5%, compared with 27.3% a year earlier. The equity ratios with the capital loans included in the shareholders’ equity were 23.9% and 31.1%.
Cash flow generated by operations was EUR 2 million. The refinancing negotiations with the main financiers continued in good faith.
Investments during the first three months of 2011 totalled EUR 1 million, or 0.3% of net sales.
January-March 2011 financial performance and position compared with October- December 2010
Net sales for January-March 2011 (EUR 267 million) were lower than net sales for October-December 2010 (EUR 308 million). The operating result for the first quarter of 2011 without non-recurring items (EUR -8 million) was stronger than for the fourth quarter of 2010 without non-recurring items (EUR -29 million). Production curtailments were made at Group mills both at the end of 2010 and at the beginning of 2011. Paper prices improved during the first months of 2011.
Negotiations at Myllykoski Paper to reduce the number of workplaces by over 80 were concluded in February. In accordance with the personnel reduction programme, job descriptions at the mill are being renewed and some operations are being outsourced. Personnel negotiations at Lang Papier are continuing.
The total number of people employed by Myllykoski Group companies in January-March 2011 averaged 2,290 (2,430 in January-March 2010 and 2,385 in October-December 2010).
Decisions taken by the Annual General Meeting
On 31 March 2011, Carl G. Björnberg, Charlotta Björnberg- Paul, Majlen Fazer, Barbara Hisinger-Jägerskiöld, Juhani Mäkinen, Karl Dietrich Seikel and Dr. Hans Jochen Waitz were re-elected to the Board. Harri Andersson and Gustaf Björnberg were elected to the Board as new members.
Mauri Palvi, Authorised Public Accountant, was elected as Auditor and KPMG Oy Ab as Deputy Auditor for the year 2011.
The Annual General Meeting was reconvened on 3 May 2011. It approved the proposal made by the Board of Directors that no dividend will be distributed for 2010.