M-real Announces Shutdowns at Mills in Germany, France

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M-real says it received several offers for the Alizay mill, and undertook negotiations to divest the mill. However, it adds that none of the potential buyers fulfilled M-real's conditions for entering into transaction., which mainly relate to the financial status of the buyer, credibility and capability to implement the presented business plan, ability to take responsibility for the employees, and the business risks as well as the financial consequences to M-real of the divestment.

M-real says it thus has decided to commence an information and consultation process to close the Alizay paper mill, which currently has some 330 employees. Despite extensive restructuring measures and investments implemented at Alizay, the company says it currently loses about EUR 3 million per month. "In the challenging operating environment that the European paper industry faces," M-real adds, "it is not possible to turn the heavily loss-making mill profitable. Nor are there any signs of such a turning point in the paper market that would change the situation."

The company notes that in the past years, it has tried to divest the Alizay mill and discussed and negotiated with a number of companies, including key industry players with no success. M-real appointed leading industry experts who approached in excess of 80 companies in the most recent process to divest the mill started in May 2011. Out of these, 65 declined and 18 showed preliminary interest, received the information memorandum, and visited the site. In the past few weeks, there were serious negotiations with two remaining candidates.

Also, the company says, the French State's Invest in France Agency (AFII) has supported M-real in the sales process. One key point in the negotiations has been the fact that M-real will not sell the Alizay mill to a buyer who would fail to turn the mill profitable. Consequently, if the mill would be shutdown, it could cause an unjustified position for the employees.

M-real explains that it has not been able to find a buyer for its Gohrsmühle mill, whether in parts or as a whole. Thus it is planning to discontinue the unprofitable specialty paper businesses as well as the production of uncoated fine paper at Gohrsmühle. M-real will continue the profitable Chromolux business and investigate possibilities to startup a new customer service and logistics center for folding boxboard in Gohrsmühle, including a sheeting facility.

M-real says it also is negotiating to divest its premium papers business of the Reflex mill. The carbonless paper converting operations of the Reflex are also "under negotiations" to be discontinued.

In total, the Gohrsmühle and Reflex mills have approximately 940 employees. The Chromolux business and the planned cartonboard customer service center would employ about 400 people. In addition, some 100 employees work for the Reflex premium papers business to potentially be divested.

M-real points out that in recent years it has implemented major profit improvement measures at Gohrsmühle and Reflex mills, including headcount reductions, closure of the loss-making coated fine paper production in Gohrsmühle, and transfer of the Simpele mill's specialty paper volumes to Gohrsmühle. The company says, however, that despite heavy improvement measures, the Gohrsmühle and Reflex operations have, due to the challenging operating environment of the European paper industry, remained severely unprofitable. Currently the monthly operating loss is approximately EUR 5 million per month. "There are no signs that the profitability would materially improve in the future," M-real adds.

M-real further notes that it has attempted to divest the Gohrsmühle and Reflex operations to many different buyer candidates during the past five years. In 2010, M-real successfully divested a part of the Reflex mill to Metsä Tissue. Other attempts to divest the operations have failed due to major losses of the operations, the European overcapacity in fine and specialty papers, and the severe cost inflation.

If the closures are implemented as planned, M-real's annual sales is expected to reduce by approximately EUR 400 million, while the operating result is expected to increase by approximately EUR 70 million based on 2011 first half's actual performance. Most of the annual financial impact is expected to materialize in 2012 with full impact from 2013 onwards. None of the planned measures will be implemented without consulting the employee representatives in line with applicable legal requirements.