STROMSDAL OYJ
STOCK EXCHANGE RELEASE
February 15, 2006, at 1 pm.
STROMSDAL CORPORATIONS FINANCIAL RESULTS FOR 2006
- The first investments related to Turn-Around program were
completed in 2006. The targeted improvements in quality,
productivity and runnability were reached.
- January-December net sales were EUR 53.1 million (EUR 56.3
million)
- January-December pre-tax profit was EUR 3.6 million (EUR -1.6
million)
- The fourth quarter net sales were EUR 12.9 million (EUR 15.1
million).
- The fourth quarter pre-tax profit was EUR -1.7 million (EUR 0.7
million).
Business Environment and Demand
The business environment was difficult for Stromsdal throughout
2006. The prices of many important raw materials, including pulp,
electricity and oil, rose during the year. There was no
proportional increase in graphic board prices, however, while the
price competition was tough in many markets.
The board markets total volume grew slightly in 2006, but due to
intense price pressures there was little growth in euros. The
board market in eastern Europe has experienced growth which is
significantly above-average, partly due to the transfer of print
jobs to countries with lower labour costs.
Non-European boards have increased their presence markedly in all
of Stromsdals European markets. This is mainly due to the euros
strong exchange rate and the increase in board production
capacity outside Europe, especially in China. These have made
imports into Europe more lucrative.
Overall, demand for Stromsdal products was low all year, which
meant that the board mill was forced to shut down for a few days
in May, June and November. In practice, the volume of orders was
too low all year for us to achieve optimal production efficiency.
On the whole, the sale of Stromsdals premium speciality grades
increased only slightly over the previous year. However, the sale
of Tecta barrier boards grew relatively strongly. In MayJune
2006, Stromsdal was forced to temporarily lay off its entire
staff for seven days when there was a severe lack of orders.
Stromsdals own UK-based sales company was closed down during the
year, and sales responsibility and employees were transferred to
the agent. The closure of the sales company caused no major costs
for Stromsdal.
Financial Position and Result
Stromsdal had revenues of EUR 53.1 million (EUR 56.3 m in 2005,
EUR 51.9 m in 2004), which represented a decrease of 5.6 per cent
from the previous year. The group made an operating loss of EUR -
2.5 million (EUR -0.4 m in 2005, EUR -1.9 m in 2004), which meant
a decrease in profits of EUR 2.0 million from the previous year.
The poor result was mainly due to the unfavourable supply and
demand situation, which characterised all months except January,
as well as the dollars exchange rate, the production downtime,
and the sharp increase in raw material and energy costs.
Production losses and additional costs were also caused by a
national two-day paper industry strike.
Employer-employee negotiations were finalised in September, and
the resulting layoffs caused one-off expenses of approximately
EUR 0.3 million, which affected results in the last two quarters.
The third quarter profit was improved by a leased machine being
purchased, which had a positive effect of EUR 0.3 million on
after-tax profits.
An additional one-week production downtime caused by improvements
to the groundwood mill negatively affected the fourth quarters
result by approximately EUR 0.6 million.
The companys difficult situation in terms of liquidity was
significantly relieved by financing arrangements made in the
summer of 2006. However, the poor result achieved in the last few
months of the year worsened the situation again. At year-end, the
companys equity ratio was 22.9 per cent (2005: 6.9 per cent;
2004: 11.4 per cent). Cash flow from operations in 2006 was EUR -
2.9 million (2005: EUR 0.7 m; 2004: EUR 1.4 m). Interest-bearing
liabilities decreased by EUR 4.3 million. The company had capital
loans worth of EUR 0.1 million.
Progress of Turn-Around program and Investments
The Turn-Around program initiated in 2005 to restore the
companys profitability was intensified in 2006. The Turn-Around
program relates to increasing the efficiency of operations,
investing into quality and productivity improvements, and
enhancing sales functions.
The greatest progress was made in operational terms. Maintenance
functions were sourced back to Stromsdal as of 1 August 2006, and
steps were taken to improve cooperation between maintenance and
production. In the autumn, the company completed employer-
employee negotiations which arrived at the reduction of thirty
employees by July 2007.
The improved whiteness of the speciality boards, that is
necessary for increasing sales of these products, was reached at
year-end. Enhanced sales effectiveness of the speciality boards
will be a key development area. The company aims at shifting the
focus of its deliveries from ordinary folding boards to
speciality boards by purposefully developing sales operations.
Success in this respect is crucial for the companys
profitability.
The biggest investment brought to completion in 2006 was the
biofuel boiler plant linked to the Juankoski board mill; the
plant was officially brought onstream in April. Stromsdal has a
30 per cent holding in the company that owns the biofuel plant
(Juankosken Biolämpö Oy). Stromsdal uses most of the energy
produced by the plant. The company covered the cost of steam and
condensate pipelines linked to the plant, for a total of
approximately EUR 0.5 million. In addition, Stromsdal granted a
total of EUR 0.5 million to Juankosken Biolämpö Oy in
subordinated and partnership loans.
Investments made in 2006 in quality improvements included an
initiative related to groundwood pulp bleaching and washing, made
towards the end of the year, costing more than EUR 1 million.
This was completed in January 2007. Renovation and modification
work will be carried out on the board machine in 2007.
In June 2006, the Finnish Ministry of Trade and Industry awarded
Stromsdal a EUR 1.5 million investment grant. The grant can be
used to cover the cost of planned investments worth EUR 5
million; 30 per cent of the investment sum can be redeemed later.
In 2006, Stromsdal made gross investments worth EUR 1.5 million
(2005: EUR 2.0 m; 2004: EUR 0.9 m).
Financing and Ownership Arrangements
In 2006, Stromsdal carried out extensive financing and ownership
arrangements to increase its equity. July 2006 saw a number of
directed share issues which departed from shareholders
preemptive rights, and which led to shares being subscribed for a
total of approx. EUR 9.2 million. A total of 11,603,078 shares
were subscribed.
In September, the AGM decided to bypass shareholders preemptive
rights by offering Finnvera Oyj a convertible bond worth EUR 1.5
million. Finnvera Oyj converted its receivables into a bond and
exercised the related options to subscribe a total of 1,875,000
Stromsdal shares.
After all of these share issues had been completed, Stromsdals
share capital was EUR 10,102,906.80, from a total of 16,213,178
shares.
Prior to the arrangements completed in July, Stromsdal had two
separate share series. Class A shares carried 20 times more
voting rights than Class B shares. As part of the reorganisation
measures in 2006, the share series were combined and differences
in voting rights were removed. All of Stromsdals shares are now
listed on the Helsinki Stock Exchange under the ticker symbol
STM1V.
The loss indicated in the approved balance sheet was covered with
reserves from the unrestricted equity fund, the premium fund and
the reserve fund, for a total of EUR 3.2 million.
At year-end, the market capitalisation value of the companys
shares was EUR 11.5 million, and the share price was EUR 0.71.
Annual General Meeting of 4 April 2006
The AGM approved the financial statements for 2005 and released
the Board and Managing Director from liability. Claes Ehrnrooth,
Juhani Erma, Björn Forss, Kim Jokipii, Petri Kangasperko and Ossi
Kokkonen were reappointed as Board members. Wilhelm von Frenckell
was appointed as a new Board member.
In the Boards organisational meeting after the AGM, Juhani Erma
was elected as Chairman.
The AGM authorised the Board to increase the companys share
capital by making new share issues or offering convertible bonds.
The companys auditors continued to be Authorised Public
Accounting Firm Deloitte & Touche Oy, with Authorised Public
Accountant Eero Lumme as the head auditor.
Extraordinary General Meeting of 29 June 2006
The extraordinary general meeting of 29 June 2006 decided to
change the minimum share capital indicated in the Articles of
Association; to change the allowable uses of the unrestricted
equity fund; to reduce share capital; to combine the two share
series; and to increase share capital with four directed share
issues.
The share issues were directed as follows:
- Institution Issue (for institutional investors; max.
15,000,000 shares)
- Investor Issue (for shareholders; max. 111,250 shares)
- Compensation Issue (for Class A shareholders; max.
216,360 shares)
- Conversion Issue (for Juankosken Kehitysmasuuni Oy; max.
1,051,174 shares)
Extraordinary General Meeting of 11 September 2006
The extraordinary general meeting of 11 September 2006 decided to
offer a bond and related options to Finnvera Oyj. The bond was
for a maximum of EUR 1,500,000, and the capital was raised by
converting the companys outstanding debt to Finnvera Oyj.
Juhani Erma, Petri Kangasperko and Ossi Kokkonen were reappointed
as Board members. Pauli Hämäläinen, Pirjo Repo and Markku
Toivanen were appointed as new Board members.
In the Boards organisational meeting after the AGM, Juhani Erma
was elected as Chairman.
Activities of the Board of Directors and its Committees
The Board of Directors convened 30 times in 2006, with an average
attendance rate of 97.0 per cent.
On 14 September 2006, the Board decided to appoint two
committees: an audit committee and a nomination committee.
The Audit Committee consisted of Petri Kangasperko (Chairman),
Pirjo Repo and Markku Toivanen. The Audit Committees duty is to
assist the Board of Directors and increase the efficiency of the
Boards work, focusing particularly on the companys financial
reporting and auditing matters, on monitoring external and
internal audits and on risk management functions. The Audit
Committee convened twice in 2006.
The Nomination Committee consisted of Juhani Erma (Chairman),
Pauli Hämäläinen and Ossi Kokkonen. The Nomination Committees
duty is to assist the Board of Directors and increase the
efficiency of the Boards work by carrying out preliminary work
in matters related to the appointment and remuneration of Board
members and the Managing Director. The committee also helps the
Board in assessing the independence of Board members and in
evaluating the work and operating methods of the Board and its
committees. The Nomination Committee convened three times in
2006.
Changes in Executive Management
Aarno Laukkanen was the companys Managing Director until 31
October 2006, after which Mikael Åbacka took over from 1
November.
The head auditor responsible for the companys accounts changed,
with Authorised Public Accountant Tapani Vuopala taking over from
October 2006.
Personnel
In terms of personnel development, Stromsdal continued to focus
on HR management and the development of managers leadership
skills. In addition, the company continued its training program
leading to the Further Qualification in the Paper Industry and
the Specialist Qualification in the Paper Industry. A new major
area of focus was occupational health and safety.
In 2006 the company had an average of 207 employees (2005: 210;
2004: 244). At year-end there were 210 employees (2005:198; 2004:
228). The main changes in personnel took place when maintenance
functions were transferred back to Stromsdal from a subcontractor
on 1 August 2006. This brought 28 new employees, most of whom had
worked at Stromsdal before maintenance was outsourced in the
beginning of 2005.
Employer-employee negotiations finalised in September 2006
resulted in the reduction of thirty employees through job
reorganisations. All redundancies will come into effect by the
end of June 2007.
In 2006, salaries, benefits and other social costs totalled EUR
10.1 million (2005: EUR 10.1 m; 2004: EUR 11.2 m).
Product Development
The main focus of product development efforts was on developing a
new premium-quality graphic board grade. The specifications and
production process for the new GraphiArt Pro product were
completed in the last quarter of 2006. GraphiArt Pro is an
exceptionally bright graphic board with a high-quality print
surface, which is suitable for many applications, including high-
class paperback books.
There was continued development of the recyclable and
biodegradable Tecta board, meant for food packaging. The greatest
interest for the product has so far been shown by the UK market,
where it is used principally for sandwich wrappers.
In 2006, Stromsdals research and development expenses were 0.3
per cent (2005: 0.3 per cent; 2004: 0.5 per cent) of revenue,
totalling EUR 0.18 million (2005: EUR 0.17 m; 2004: EUR 0.27 m).
While GraphiArt Pro was being developed, the properties and
printability of all our board grades were improved.
Environment
Stromsdals board products are wholly recyclable and compostable.
The environmental impact of the companys production processes is
small and comes mainly from raw material use, energy and water
consumption, atmospheric emissions, wastewater and waste. The
company strives to reduce its environmental impact through
continuous development work, particularly by reducing its use of
energy and raw materials and improving fibre recovery.
The board mill uses a lot of steam power at the drying stage of
the board production process. At the beginning of 2006, the steam
was still being produced by two of the companys oil vessels. In
the first quarter, Stromsdal made arrangements to purchase its
steam power from a biofuel plant completed in the mill area. This
meant that oil combustion was almost completely given up in steam
production. The biofuel plants fuels include by-products from
the board mill, peat and wood chips.
The biological wastewater treatment plant that purifies the board
mills wastewater has improved its operations significantly in
recent years and in 2006 achieved the best purification results
so far in this century.
One of the companys products, Tecta barrier board used for food
packaging, offers an environmentally friendly alternative to
plastic or plastic-coated packaging.
Risks and Other Factors Affecting Business
Stromsdals operations are affected by various business,
liability and financing risks. The company strives to reduce and
control these risks in its operations. Still, Stromsdals
operations can be affected by the risks listed below, as well as
other new and unexpected risks.
The economic situation in Europe and elsewhere in the world, the
markets board production capacity, and demand for products all
have an effect on Stromsdals operations and profitability. There
are no known initiatives to build new, competing board mills in
the companys main markets; however, the capacity of many
existing mills is being expanded through investments and
production improvements.
If the companys profitability and cash flow fail to improve
according to plan in 2007, the investment program set as part of
the companys Turn-Around program may not be completed on
schedule.
Almost half of Stromsdals revenues come from a handful of large
customers. The loss of one or more key customers could have a
negative effect on the companys operations, profits and
financial position. In general, however, Stromsdal has been
successful in creating and maintaining long-term customer
relationships.
Stromsdal sells most of its products in euros, but a significant
proportion of sales takes place in US dollars and pounds
Sterling. Sharp exchange rate fluctuations can affect Stromsdals
operations and profitability. The company uses forward exchange
agreements for a part of its planned accounts receivable, to
hedge against currency risks.
The main raw materials for the production of folding boards are
wood and pulp. Price increases in these products have an
immediate effect on the companys profitability. Stromsdal is
also a heavy user of energy and transport services, so
fluctuations in the price of electricity, steam power and
transports affect profitability. The company uses electricity
forward agreements to hedge against fluctuations in electricity
prices.
Changes in market interest rates and margins can affect
Stromsdals financial expenses. The company reduces its credit
risk by applying credit insurance to most of its sales.
Typically, the credit insurance will cover 90 per cent of the
value of a receivable in the case of any problems.
Capital, business interruption, business and product liability
risks, as well as environmental, transport and travel accident
risks are covered by insurance. The company uses an insurance
broker to evaluate its insurance needs and to coordinate its
policies.
Future Outlook
The competitive scenario is expected to remain tough in the
European board market, particularly in cheaper board grades. The
amount of imported non-European boards is expected to continue
growing as long as the price of the US dollar stays low in
relation to the euro.
The Turn-Around program actions will continue to be implemented
in 2007, in order to further improve quality and make operations
more efficient. This is expected to increase the companys
revenues and improve its profits.
Proposal of the Board of Directors for Profit Distribution
The company has no distributable funds. The Board of Directors
proposes that no dividends be paid for 2006.
Annual General Meeting 2007
Stromsdals Annual General Meeting will be held in Juankoski at 1
pm on Thursday 29 March 2007.
CONSOLIDATED INCOME STATEMENT, IFRS 10-12/ 10-12/ 1-12/ 1-12/
2006 2005 2006 2005
MEUR MEUR MEUR MEUR
NET SALES 12,9 15,1 53,1 56,3
Changes in inventories of finished
goods +/- -0,3 0,9 -0,2 0,9
Other income 0,1 0,5 0,8 0,8
Materials and services -9,2 -10,3 -37,6 -38,5
Employee benefits expense -2,6 -2,5 -10,1 -10,1
Depreciation -0,8 -0,8 -3,4 -3,1
Other expenses -1,4 -1,8 -5,1 -6,6
OPERATING PROFIT/LOSS -1,4 1,1 -2,5 -0,4
Share of associated companies´ 0,0 0,0 0,0 -0,0
profit
Financial income and expenses -0,3 -0,4 -1,2 -1,1
PROFIT/LOSSA BEFORE TAXES -1,7 0,7 -3,6 -1,6
Income tax 0,0 -0,1 -0,1 -0,4
PROFIT/LOSS FOR THE FINANCIAL YEAR -1,7 0,5 -3,8 -1,9
EARNINGS/SHARE (EPS), diluted and
undiluted -0,11 0,19 -0,45 -0,71
CONSOLIDATED BALANCE SHEET, IFRS 31.12. 31.12.
2006 2005
MEUR MEUR
ASSETS
NON-CURRENT ASSETS
Other intangible assets 0,9 1,0
Tangible assets 22,2 23,2
Investments in associated companies 0,5 0,5
Available-for-sale financial assets 0,0 0,0
Receivables 0,6 0,3
Deferred tax assets 0,1 0,2
TOTAL NON-CURRENT ASSETS 24,3 25,2
CURRENT ASSETS
Inventories 5,9 4,7
Receivables nad other receivables 10,1 10,5
Cash and cash equivalents 0,7 0,5
TOTAL CURRENT ASSETS 16,7 15,7
TOTAL ASSETS 41,0 40,9
SHAREHOLDERS´ EQUITY AND LIABILITIES
SHAREHOLDERS´ EQUITY
Share capital 10,1 5,2
Issue premium fund 1,9 0,4
Reserve fund 0,0 0,6
Other fund 2,0 2,2
Exchange rate difference 0,1 0,1
Retained earninss -0,9 -3,7
Profit/loss for the financial year -3,8 -1,9
TOTAL SHAREHOLDERS´ EQUITY 9,4 2,9
NON-CURRENT LIABILITIES
Deferred tax liability 0,0 0,0
Provisions 0,2 0,2
Interest-bearing liabilities 12,8 14,6
Other liabilities 0,1 0,0
TOTAL NON-CURRENT LIABILITIES 13,2 14,9
CURRENT LIABILITIES
Accounts payable and other 10,1 12,3
Liabilities recognised in profit or
loss 0,0 0,0
Provisions 0,0 0,0
Interest-bearing liabilities 8,4 10,9
TOTAL CURRENT LIABILITIES 18,5 23,2
TOTAL LIABILITIES 31,6 38,0
TOTAL SHAREHOLDERS´ EQUITY AND 41,0 40,9
LIABILITIES
2006 2005
CASH FLOW STATEMENTS, IFRS
MEUR MEUR
BUSINESS OPERATIONS
Operating profit/loss -2,5 -0,4
ADJUSTMENTS TO OPERATING
PROFIT/LOSS:
Depreciation 3,4 3,1
Non-cash transactions -0,4 0,2
Change in net working capital:
Increase/decrease in accounts and 0,4 0,2
other receivables
Increase/decrease in inventories -1,2 -1,1
Increase/decrease in accounts and -1,2 0,9
other payables
Interest paid -1,2 -1,2
Interest received 0,0 0,0
Dividend received 0,0 0,0
Other financial items paid -0,2 -1,1
Taxes paid -0,0 -0,0
NET CASH FLOW -2,9 0,7
INVESTMENTS
Purchase of associated companies 0,0 0,0
Purchase of tangible assets -2,1 -1,6
Purchase of intangible assiets -0,1 -0,3
Sale of associated companies 0,0 0,0
Sale of tangible assets 0,0 0,0
Sale of long-term investments 0,0 0,0
Increase/decrease of long-term -0,3 -0,1
receivables
TOTAL CASH FLOW FROM INVESTMENTS -2,5 -1,9
CASH FLOW BEFORE FINANCING ITEMS -5,5 -1,3
FINANCING
Share issue 6,7 0,0
Increase of long-term loans 1,2 1,3
Increase/decrease of subordinated 0,0 -0,1
loans
Instalments of long-term loans -1,2 -0,6
Increase/decrease in short-term -0,7 0,8
loans
Instalments of finance leasing -0,4 -0,2
Dividend paid 0,0 -0,0
TOTAL FINANCING 5,7 1,2
INCREASE/DECREASE OF LIQUID FUNDS 0,3 -0,0
LIQUID FUNDS ON JAN 1 0,5 0,5
LIQUID FUNDS ON DEC 31 0,7 0,5
MEUR Share Issue Re- Other Ex- Retained Tot.
capi- pre- serve funds change earnings
tal mium fund differ-
fund ence
Share- 5,2 0,4 0,6 2,2 0,1 -5,7 2,8
holders´
eauity
1.1.06
Losses -0,4 -0,6 -2,2 3,2 0,0
covered
Reduction -3,6 2,0 1,5 0,0
of share
capital
Share- 7,0 2,3 9,2
issue
Using of 1,5 1,5
share
options
Exchange 0,0 0,0
differenc
e
Share -0,4 -0,4
issue
expenses
recognise
d
directly
in equity
Net -3,8 -3,8
profit/
loss of
the
financial
year
Share- 10,1 1,9 0,0 2,0 0,1 -4,7 9,4
holders´
equity
31.12.06
2006 2005
CONTINGENT LIABILITIES AND PLEDGES MEUR MEUR
GIVEN
FOR GROUP´S OWN DEBT
Mortgages on buildings and leases 5,7 5,7
Mortgages on company assets 7,7 7,7
Pledges given 8,3 9,5
Pledged shares 0,5 0,5
Leasing-liabilities 0,0 0,1
OHTER PLEDGES GIVEN
Pledged deposits 0,0 0,1
Mortgages on company assets 0,0 0,8
TOTAL 22,2 24,4
2006 2005
MEUR MEUR
OUTSTANDING DERIVATIVES CONTRACTS
31.12.
FOREIGN CURRENCY HEDGING
MARKET VALUE 0,0 -0,0
PAR VALUE 0,0 1,5
GROUP´S KEY FIGURES 2006 2005
Earnings/share, euros -0,45 -0,71
Shareholder´s equity/share, 0,58 1,04
euros
Equity ratio, % 22,92 6,9
Current ratio 0,9 0,7
Gross investments, Meur 1,5 2,0
Interest-bearing liabilitis, 21,2 25,5
Meur
Number of shares average 8314531 2735100
Number of share 31 December 1621317 2735100
8
GROUP PERSONNEL ON AVERAGE 207 210
Business segmentation is not presented, as Stromsdal Group only
has one business segment. Geographical sales segmentation is
presented below for the net sales.
NET SALES BY MARKET AREA 2006 2005
(1000 % (1000 ) %
)
Finland 3 011 6 4 251 8
EU 32 778 62 33 699 59
Rest of Europe 13 661 26 13 826 25
USA and Canada 491 1 0 0
Asia 305 0 502 1
Other countries 2 896 5 3 992 7
Total 53 142 100 56 270 100
Largest shareholders
December 31, 2006 Shares and
votes, number %
1. Suomen Teollisuusijoitus Oy 2 500 000 15,4
2. Svenska Handelsbanken AB (Publ) 2 500 000 15,4
3. Juankosken Kehitysmasuuni Oy 1 891 694 11,7
4. Finnvera 1 875 000 11,6
5. ABB Oy 912 150 5,6
6. Enterpack Oy 698 253 4,3
7. Savon Voima Oyj 625 000 3,9
8. Pellonmaa Niilo 375 000 2,3
9. Solagem Oy (now Santava Oy) 375 000 2,3
10 Seligson & Co Phoenix 300 000 1,9
STROMSDAL OYJ
BOARD OF DIRECTORS
For further information, please contact
Mikael Åbacka
Managing Director
Tel. +358 (0)17 688 641
DISTRIBUTION
Helsinki Stock Exchange
Major media
STROMSDAL CORPORATIONS FINANCIAL RESULTS FOR 2006
| Source: Stromsdal