Metsä Tissue sustains growth in branded sales, raw material costs eat into profits

Operating profit was affected by various factors, one being a sharp peak in variable costs. This applied particularly to escalating raw material prices. Pulp prices climbed 40 per cent on average and recovered paper prices in Central and Eastern Europe were as much as double those charged last year. The adverse impacts of this cost inflation were fortunately mitigated through successful hedging, price increases and ongoing efficiency enhancements. Metsä Tissue booked a non-recurring item and provision of seven million euros related to its Polish development project and a non-recurring cost of two million euros related to restructuring at the Mänttä mill.

Metsä Tissue continued to improve its cash flow and liquidity. Operating networking capital and net interest-bearing debt were successfully reduced. The company increased its equity ratio to 31.5 per cent (30.6%) and net financing expenses were reduced to 18 million euros (28). A dividend of 12.6 million euros was paid to A and B series shareholders.

Two strategic development programmes were launched during the year under review. One was related to a deal with M-real concerning the acquisition of Paper Machine 5 and related assets at the Düren plant in Germany. The deal was finalized in November. With production and converting now located closer to key markets, product availability will improve and Metsä Tissue will be able to leverage synergies from its existing production and warehousing locations in Germany. The deal will furthermore enable new products and product categories to be developed, thereby securing the future growth of the company’s baking and cooking business. The company concurrently decided to retire the 83-year-old greaseproof paper machine at the Mänttä mill, Paper Machine 5, by summer 2011. Statutory negotiations have been concluded, resulting in a headcount reduction of 117 employees.

The second strategic programme is designed to strengthen and upgrade the efficiency of Polish operations and to enhance product quality and the service offering in Poland. During the second quarter, the company announced its intention to consolidate tissue production capacity at the Krapkowice mill and discontinue papermaking at the Konstancin-Jeziorna mill by the end of 2012. The company is looking into various options regarding the future of operations currently based in Konstancin-Jeziorna.

The rebuild of Paper Machine 10 at the Mänttä mill was completed in spring. In addition to enhancing energy efficiency, this investment further improved the quality of Lambi, Serla and Katrin products. To support the Katrin brand’s growth targets, Metsä Tissue announced plans to significantly augment its Away-from-Home converting capacity at the Mänttä mill. This project is scheduled for completion in the first quarter of 2012. Two napkin lines were installed at the Pauliström mill in Sweden. Together with existing napkin lines in Germany, these will further improve supply reliability. 

During 2010 Metsä Tissue invested in a company-wide upgrade of its ERP system, maintenance system and related processes. The company is currently in the midst of the stepwise integration of numerous different systems into one common system and a fully harmonized set of processes. The renewal of the maintenance system and related processes will also take place on a phased basis.

All of Metsä Tissue’s brand web pages were redesigned in 2010. Corporate responsibility was a guiding theme in all marketing and communications, as highlighted by the new websites and Lambi’s participation in the Pink Ribbon campaign, now for the fifth time. Last year the Away-from-Home business and its Katrin brand deployed a multi-channel approach in communicating the importance of good hand hygiene.

Lambi expanded its brand offering with the launch of a napkin product line and the new Lambi Kids concept targeted at families with children. Other recent launches included the new Serla Akrobat dispenser and the Mola and Tento Gigant XXL ranges. SAGA – the new baking & cooking brand launched in 2009 – continued to broaden its foothold in Europe as planned.

The year was a very challenging one in terms of external disruptions. The smooth flow of business was hampered by various factors: limited pulp availability following the earthquake in Chile; the reduced availability of recovered paper; skyrocketing raw material prices; unusually difficult weather conditions and strikes by dock workers in Finland and paper workers in Sweden. Metsä Tissue nevertheless proved successful in taking timely pre-emptive action and responding quickly to minimize any interruptions to business. The company in fact improved its delivery accuracy and already-high standard of customer service.

In the sphere of environmental performance, Metsä Tissue’s main focus areas in 2010 were energy and material efficiency. The company’s stated goal is to improve energy efficiency by 20 per cent between 2008 and 2012. Thanks to measures initiated in 2008, the improvement of energy efficiency corresponded to 11 per cent of the company’s energy consumption at year-end. Metsä Tissue promotes efficient use of materials through recycling, reuse of waste materials and efficient energy recovery. Last year the company acquired a 50 per cent holding in Finncao Oy., a company specializing in the recycling of deinking sludge and ash. With this acquisition, the company is now fully owned by Metsä Tissue. In future Metsä Tissue will continue working to intensify the recycling of deinking sludge and ash.

A healthy level of demand is expected to continue for tissue paper as well as for baking and cooking paper, and sales will remain strong. Two prevailing trends are evident on the market: responsible consumerism and growing eco-consciousness. The public is also showing enhanced awareness of the importance of good hand hygiene.

Various factors continue to exert cost pressure, notably the high price of pulp and recovered paper, escalating energy costs and indirect taxes. Metsä Tissue will continue making an active effort to upgrade the efficiency of its ways of working, processes and systems. The company will also seek further growth through development projects and intensified marketing. The brand and service offering will be enhanced further to better meet the expectations of customers and consumers.