Feb 07, 2007. /Lesprom Network/. M-real's 2006 result before taxes, excluding non-recurring items, improved to a loss of Euro 92 million from a loss of Euro 142 million in the previous year. The operating result excluding non-recurring items amounted to Euro 45 million compared to Euro 4 million in 2005. The operating result improved mainly due to an increase in delivery volumes and slight increases in the prices of uncoated fine paper and coated magazine paper. Personnel costs excluding non-recurring items were down both in absolute terms and in proportion to the business volume. The result was weakened by higher raw material prices and higher energy prices in particular, investment and maintenance shutdowns, slightly lower selling prices of folding boxboard and coated fine paper, and the strike of paper workers at the Finnish mills in May 2006. The higher raw material prices were offset by improved efficiency in production. By comparison, in 2005 profitability weakened particularly due to the labour dispute in Finland which led to lower delivery volumes in paperboard and coated magazine paper, as well as Metsä-Botnia's lower operating result. The operating result for 2006, Euro -271 million, includes a net of Euro -316 million as non-recurring items, of which Euro -260 million were booked in the fourth quarter. The operating result excluding non-recurring items amounted to Euro 14 million in the fourth quarter versus Euro 17 million in third quarter. Compared with the previous quarter, the operating result was weakened by a decrease in product inventories and positively impacted mainly by higher selling prices of uncoated fine paper. M-real's 2006 sales totalled Euro 5.6 billion compared to Euro 5.2 billion in 2005. EBITDA were Euro 299 million versus Euro 439 million a year ago. Mikko Helander, M-real's CEO, comments on M-real's performance in 2006 and outlook: "While our profitability excluding non-recurring items improved last year, it remained heavily negative. This has to change. Our operating environment has changed in the past few years. We believe that the consolidation of the European paper industry will continue and that the structure of the paper merchanting market is going to change. Higher production input costs, the unprecedentedly low product prices, changes in exchange rates and the resulting weakening of our ability to compete with prices all pose changes to our operating environment. In March 2006 M-real's board of directors initiated a strategic review of M-real's current business portfolio. As the first step in the review, we announced an extensive restructuring programme in October 2006. The programme includes capacity closures, a new costs savings programme, a reduction of working capital and a number of divestments. The programme is planned for completion by the end of 2007. In connection with the restructuring programme, M-real closed its paper mill at Sittingbourne in the UK at the end of January 2007 and is closing two paper machines (PM 6 and 7) at the Gohrsmühle mill in Germany by the end of February. The Wifsta mill in Sweden will be closed by the end of June. In order to improve its balance sheet structure and because of reduced need for pulp at its mills, M-real sold 9% of Metsä-Botnia's shares to Metsäliitto Cooperative on 30 January 2007. Metsäliitto paid Euro 240 million for the shares, and M-real booked a capital gain of approximately Euro 135 million. In addition, M-real has initiated the sale process for the folding carton plants. Other divestments will be announced later. Demand for M-real's main products is forecast to improve slightly in the first quarter of 2007 due to seasonal factors compared with the fourth quarter of 2006. In fine paper products, capacity utilisation rates are very high at the beginning of the year. We have initiated measures to increase the prices of fine paper products and are currently confident that we will be able to push through these increases at least in part. We will continue to work actively towards raising the prices of fine paper products. In coated magazine papers, the market situation has fallen short of our expectations in the past few months. The price increases for folding boxboard and coated magazine paper will be challenging in the short term. The need to increase product prices is pressing for all of our main grades. We anticipate the market balance to improve for all of M-real's main paper grades due to capacity closures already implemented or planned for 2007. The first-quarter 2007 result before taxes and excluding non-recurring items is expected to improve from the last quarter in 2006. In line with the restructuring programme, M-real's primary target for 2007 is to improve its balance sheet and its profitability. Our result for 2007 will be burdened by an increase of production input costs, estimated at more than Euro 100 million, although their impact will be eliminated through the cost savings programme. In order to achieve a positive result before taxes and non-recurring items in 2007, we must be able to raise the prices of our paper products," says Mr. Helander.