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M-real Plans New Loss-Reduction Measures For Its Paper Business
Metsa, Finland, 04 May 2011 -- M-real Corporation, part of Metsäliitto Group, plans to divest the entire Gohrsmühle mill in Germany, or alternatively, parts of the mill, based on a paper park concept. In case the divestment is unsuccessful, M-real will discontinue the uncoated fine paper and unprofitable parts of the speciality paper operations at the Gohrsmühle mill. Should the closures materialize, Gohrsmühle mill would only produce cast-coated label and packaging products. M-real is also planning to discontinue its remaining carbonless paper converting operations at its Reflex mill in Germany.

During recent years, M-real had several unsuccessful attempts with a number of candidates to divest the Alizay paper mill in France. M-real continues to investigate possibilities to divest the mill. M-real invites credible candidates to a public process aiming at a divestment of the Alizay paper mill by the end of September 2011, at the latest. Should M-real fail to find a credible buyer for the mill within the given timeframe, it plans to close the Alizay paper mill.

If the measures are implemented as planned, M-real’s annual sales are expected to be reduce by about EUR 390 million, and the operating result to increase by about EUR 60 million, based on 2010 actual performances. Most of the annual financial impact is expected to be seen in 2012, with full impact from 2013 onwards. 

As a result of the planned measures, M-real’s annual paper production capacity would be reduced by about 500,000 metric tons, of which about 430,000 metric tons would be uncoated fine paper and 70,000 metric tons would be coated specialty papers. None of these planned measures would be implemented without consulting the employee representatives, in line with applicable legal requirements.

Both the Gohrsmühle and Reflex mills have been unprofitable for some time. If the divestment turns out to be unsuccessful, M-real plans to continue the production at paper machine 2 and to discontinue all other production operations at Gohrsmühle. At the same time, Reflex carbonless paper converting would be discontinued. If the closures materialize, personnel reduction at Gohrsmühle and Reflex would total about 480 people. The planned measures have no impact on the previously announced plan to divest Reflex mill’s premium papers business. In total, about 880 people work at the Gohrsmühle and Reflex mills, excluding personnel included in the earlier announced premium papers divestment plan.

Alizay mill also has been oiperating at a heavy loss for a long time. M-real has in recent years implemented significant internal improvement measures at Alizay, but as the operating environment has become more difficult, the mill’s financial performance and outlook have remained very poor. Currently, there are about 330 employees at Alizay mill.

”M-real has implemented extensive restructuring and development actions at Alizay and Gohrsmühle mills during recent years. Despite these actions M-real is not able to improve the mills’ profitability to satisfactory level due to the European overcapacity situation and the increased production costs. M-real has actively tried to divest Alizay and Gohrsmühle mills. In Alizay M-real will commence a public process lasting until the end of September 2011 to accelerate the divestment. M-real continues to try to find a buyer also for the entire Gohrsmühle mill or alternatively for the different parts of the mill. If the divestments of Alizay and Gohrsmühle are unsuccessful M-real considers to close Alizay mill and to discontinue the unprofitable businesses in Gohrsmühle. These planned measures are necessary to raise the company’s profitability to the target level,” said Mikko Helander, M-real's CEO.

Implementations of any measures are subject to the completion of statutory consultation processes with employees, based on applicable local legislation. Alternatives other than closures also will be investigated as part of the consultation processes. The consultations will be started at Gohrsmühle and Reflex as soon as possible. Concerning Alizay, the information and consultation process relating to possible closure will be commenced in case the divestment process is unsuccessful. M-real will be proactive in the mitigation of the planned measures’ social impacts for the employees.

In total, the planned measures might result in approximately EUR 170 million in negative nonrecurring result impacts. The estimated net cash costs would be approximately EUR 50 million. Based on the planned measures, Second quarter 2011 results for specialty papers are expected to include approximately EUR 20 million in nonrecurring impairments and cost provisions. Estimates of the nonrecurring financial impacts are preliminary; they will be further determined when the final decisions for the planned measures are taken.

”The planned measures are a major step in M-real’s transformation to a packaging board-focused company. Despite the significant negative nonrecurring result impact, the planned measures are well justified from shareholder value point of view,” said Kari Jordan, chairman of M-real’s board of directors.

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