In end of 2006 M-real started a major restructuring programme target wise to improve annual profitability by 100 million EUR as if of 2007 programme. Additionally, M-real launched a working capital reduction programme. By improving supply chain efficiencies, payment terms and inventory management, M-real targeted EUR 100 million of cash flow improvements in 2007. M-real targeted also EUR 500 million proceeds from divestments.

This was completed in the end of previous year and targeted cost savings actually were exceeded (150 MEUR) and regained capital from divestments was more than 700 MEUR.
“Previous year the closure of more than 500,000 tonnes of paper and paperboard capacity also improved market balance for many paper grades in Europe. This should help the industry to put forward some price increases”, Mr Helander sustains.

Right in the beginning of this year M-real launched a new programme for 2008-09 with further 100 MEUR annual profit improvement and 200 MEUR of divestments.
“We have started strongly with the new programme and we’ll even present more cost savings and profit improvements later this year.”

“I’m very proud of the fighting spirit of our people at M-real’s business areas and support functions,. Without them we would never have exceeded these targets. Without these profit improvements we would have been in serious difficulties due to current obstacles such as cost inflation and weakening of British pound and US dollar.

M-real has decreased workforce from 15,000 to less than 10,000 people in 3 years, closed a vast amount of production capacity, and heavily reduced operational costs.
“Nevertheless the production units recently expressed new production records which mean that production and sales personnel are doing a great job”, he says.
“Communication to stakeholders has been improved in recent years. Despite of significant personnel reduction labour unions have understood the challenging moment of the European pulp and paper industry and have supported M-real’s restructuring.”

Struggling raw materials market
The raw material situation in Northern Europe with the Russian export duties is of course another aggravating issue. The mild winter has complicated the harvesting of wood.
“For that reason in April we announced our intention within Metsä-Botnia and M-real to reduce wood consumption with two million cubic meters in Sweden and Finland. “
This will have certain effects on the pulp production in both countries. The supply of birch is today quite critical as a result of the former imports from Russia regarded mainly birch.

This important restructuring effort by M-real staff and divisions partly is hidden by the cost inflation and negative currency influences.
“When the US dollar and UK pound regain quotas on the Euro these efforts will turn more visible”

Another issue is definitely that Mr Helander expects further structural changes and consolidation in European paper industry.
“There is a substantial overcapacity and the market is still too fragmented with many small and medium sized players, especially in coated fine papers. I’m sure of that European paper industry will undertake a similar change developed during last five years in the US.

Still space for R&D
One might question if there is room for any R&D and mill investments in this business environment?
“M-real will always be one of the forerunners in new technology and innovations”, Mikko Helander sustains. “An example is our big investment in the Simpele mill that has already resulted in numerous new light-weighted and environmental friendly packaging products”.

“Moreover, we feel that operational innovations like our business concepts also have a significant role in innovation management. We are launching new business concepts to simplify our operations in a way that we will be in a position to offer faster and more reliable customer services and deliveries. That will further improve our overall operational efficiency. Besides traditional product development I believe this approach to business is urgent to adopt in European pulp and paper industry.”

Portfolio and segment changes
For example, through the Galerie customer programme M-real is decreasing its coated magazine paper product portfolio from 4,800 different products to about 1,200-1,300 products. This allows M-real to offer faster and more reliable deliveries, reduce stocks and inventories for customers. Therefore all players decrease working capital thus improving financial performance.
“This concept has successfully been implemented and encouraged also by customers. We will soon put similar concepts into operation in other business areas too”, he points out.
Commercial printing and publishing areas are from this year organized under Graphic papers to streamline and simplify organisation.

Regarding Metsäklusteri, the new Forest Cluster Ltd organisation, it is an interesting arrangement for strengthening the competitiveness of the industry, Mikko Helander says and concludes.
“M-real is one of the largest shareholders and will be an active player also in the future together with other Metsäliitto Group related shareholders in Metsäklusteri”.