Newsdetails

· Group results 2005 as expected below last year’s record level
· Further increase of dividend from EUR 2.40 to EUR 2.60 per share
 
OUTLOOK

· High capacity utilization at MM Karton and MM Packaging since the beginning of the year 
 
In 2005, the development of the Mayr-Melnhof Group was marked again by a high degree of stability. This was achieved despite on-going stagnation in consumer demand in the main markets of Western Europe and the accompanying intensification of competition, as well as the massive increase in energy prices and crude oil price driven input factors. Record results in cartonboard processing stood in contrast to a clear downturn in the profit contribution in cartonboard production. 

At today’s press conference in Vienna the Mayr-Melnhof Group presents 2005 group results as expected below the previous year’s record level. Consolidated sales increased by EUR 33.0 million or 2.3 % to EUR 1,455.2 million (2004: EUR 1,422.2 million). Clear sales growth in cartonboard processing more than compensated for the light downturn in cartonboard production. In the regional break-down Eastern Europe recorded further growth in sales whereas non-European business declined and Western Europe remained stable.

Operating profit reached EUR 140.7 million (2004: EUR 149.9 million) which is 6.1 %, or EUR 9.2 million, below last year’s figure. The reduction resulted from cartonboard production. This can be put down to high crude oil related costs and a lower utilization of capacity to stabilize price.

Accordingly, in 2005 the Group’s operating margin amounted to 9.7 % (2004: 10.5 %). Return on capital employed yielded 19.5 % (2004: 22.0 %).

Profit before tax amounted to EUR 145.4 million in comparison to EUR 149.4 million in the previous year, a drop of 2.7 %.

Income taxes expense rose to EUR 50.6 million (2004: EUR 42.8 million) in 2005. The effective Group tax rate stepped up from 28.6 % to 34.8 %. The rate from the previous year was untypically low since it can be particularly attributed to non-recurring deferred tax income resulting from a reduction in the Austrian corporate tax rate and to further tax optimizations within the Group.

The business year 2005 closed with a profit for the year of EUR 94.8 million after reaching EUR 106.6 million the previous year.

In accordance with the Group’s dividend policy, which targets on the distribution of one third of the consolidated annual net income in the long term, the Management Board will propose to the Shareholders’ Meeting a dividend increase from EUR 2.40 (excl. anniversary bonus) in 2004 to EUR 2.60 per share for 2005.


Consolidated Balance Sheet

The Group’s total assets increased by EUR 67.0 million compared to year-end 2004 and reached EUR 1.346.4 million. Total equity went up primarily because of the net income for the year less the dividend by EUR 53.7 million to EUR 769.7 million (2004: EUR 716.0 million). This results in an equity ratio of 57.2 % (2004: 56.0%). The return on equity stood at 12.8% (2004: 15.8 %).

The increase in current assets from EUR 597.0 million to EUR 663.6 million is largely due to the increase in liquid funds and the operational build up of working capital.

Financial liabilities were for the most part long-term in nature and amounted to EUR 186.2 million (December 31, 2004: EUR 180.4 million).

Total funds available to the Group, which comprise cash and available-for-sale financial assets increased from EUR 302.2 million to EUR 338.1 million. The Group continues to have no net debt as liquid assets soared above interest-bearing liabilities by EUR 151.9 million (December 31, 2004: EUR 121.8 million).
        

Cash Flow Development

Cash flow from operating activities amounted to EUR 158.4 million towards EUR 205.5 million in the previous year. This difference is primarily attributable to the build up of working capital linked to the resumption of production following the fire at the cartonboard mill in Eerbeek and the folding carton companies bought in the previous year. 

Cash flow from investing activities of EUR –82.8 million was clearly below the figure for the previous year (2004: EUR –127.3 million). This was due to the cessation of payments for acquisitions (2004: -36.6 million).

Net expenditure on investments in tangible and intangible fixed assets dropped from EUR -97.8 million to EUR -85.0 million. The focus of investment activities centered on constructing new plants and modernizing machinery and equipment.

Investment undertaken by MM Karton amounted to EUR 35.5 million (2004: EUR 58.8 million). Major projects concerned renovations to the waste water plant at Deisswil and technical improvements to the Eerbeek and Baiersbronn mills.

Investment expenditure at MM Packaging of EUR 53.9 million (2004: EUR 41.1 million) concentrated on new facilities built in Alzira in Spain, Cherkassy in the Ukraine and Trier in Germany, as well as purchases of high-performance technology.

Cash flow from financing activities rose from EUR –17.9 million to EUR –40.6 million. This increase largely resulted from the payment of the anniversary bonus dividend.


OUTLOOK

Given an unchanged competitive situation, demand on the European cartonboard and folding cartons markets has been developing quite firmly in the first few weeks of the year. Both MM Karton and MM Packaging have witnessed high utilization of capacities since the beginning of the year. However, this cannot yet be interpreted as an upswing in demand.

In the wake of the heavy burden that the huge rise in energy costs is having on the current financial situation at MM Karton, the increase in cartonboard prices announced last year is now being gradually passed on to the market. Indications of the degree and extent of the cost compensation will be presented with the report on the first quarter of 2006. It is positive to note that the intake of orders has held up well even during the implementation of the price increase for cartonboard. Beyond Europe, cartonboard prices appear to have stabilized.

To ease pressure on quantities, the machine in the Nikopol board mill in Bulgaria was temporarily taken out of production, probably until the middle of 2006.

Passing on cartonboard price increases to the end customer is of the highest priority for cartonboard processing. The emphasis continuously is placed on increases in productivity.

Because of the unwavering trend in demand for recovered paper, from the present point of view we are not anticipating any significant price changes for the time being. Costs of energy and crude oil driven input factors remain unchanged at a high level.

We are pursuing acquisition projects in both cartonboard production and processing. The regional focus will be on Europe and neighboring regions.

In view of uncertain economic developments, it is not possible to give an estimate of the results for 2006 at present. 
 

DEVELOPMENT IN THE 4TH QUARTER 2005

As in previous years, the fourth quarter of 2005 was again characterized by seasonally lower demand and capacity utilization.

The Mayr-Melnhof Group registered consolidated sales of EUR 364.0 million (4th quarter 2004: EUR 348.5 million) and an operating profit of EUR 33.8 million (4th quarter 2004: EUR 31.8 million). The decline compared to the third quarter (EUR 36.3 million) mainly resulted from expenses in connection with the new rotogravure printing sites and the closure of production at the facility MM Packaging Hungaria. At 91 %, capacities of MM Karton were utilized at the same rate in the fourth quarter of 2005 as in the third quarter (2004: 4th quarter: 88 %, 3rd quarter: 97 %).

DEVELOPMENT IN THE DIVISIONS

Divisional overview: MM KARTON
 

With continued unchanged demand for cartonboard in Western Europe and reduced sales opportunities as a consequence of the massive expansion of capacity in the Far East, the downward pressure on quantities and prices on cartonboard markets clearly increased in the course of the year. However, with sales hikes in Eastern Europe, MM Karton succeeded in securing sales volumes short below the levels for the previous year. When it came to orders and purchases, as before, customers planned more in the short term. This was manifested by an average order backlog for the division of about 55,000 tons (2004: 72,000 tons), clearly below the figures for the previous year.

Given these intensive conditions, a policy of securing the highest possible price stability through a rigorous discipline regarding quantities was followed. Average sales prices were successfully kept roughly in line with 2004 levels. As a consequence, plant utilization at MM Karton reduced from 95 % to 92 %, with part of this decline due to the start-up operations at the modernized cartonboard machine in Eerbeek and alteration work in Nikopol.

The price for our main raw material, recovered paper, remained largely unchanged and stable in line with the moderate demand across Europe. All crude oil price driven input factors were subject to ongoing significant price rises throughout 2005. For this reason, we announced a price rise in the fourth quarter of 2005 to take effect at the beginning of 2006.

Production and dispatch quantities of 1.53 million tons and 1.51 million tons respectively were only marginally different from previous year’s figures: +0.8 % and –0.6 % respectively. Similar to the trend with quantities, at EUR 767.2 million sales were only slightly down on last year (2004: EUR 777.9 million, -1.4 %). Western Europe accounted for 72 % of sales, Eastern Europe for 16 % and non-European countries for 12 % (2004: 71 %, 14 %, 15 %). MM Karton supplies over a thousand customers, most of whom are medium-sized cartonboard converting companies. With a delivery share of roughly 15 % of total sales, or 220,000 tons, MM Packaging is the largest customer of MM Karton.

Operating profit dropped from EUR 79.8 million to EUR 61.8 million (-22.6 %), which was particularly due to higher input costs and lower capacity utilization. The operating margin amounted to 8.1 % (2004: 10.3 %). The return on capital employed decreased to 12.5 % (2004: 17.0 %).

Divisional overview: MM PACKAGING

Again in 2005, the lack of growth on the market and overcapacity set the tone for the extremely intense competitive conditions on the European folding carton market. By simultaneously linking increases in productivity with an increase in market penetration, MM Packaging succeeded in closing 2005 with a clear increase in profit despite the keen competition and built on its leading position in the market still further. Acquisitions from the previous year as well as successful new business provided contributions to growth.

Increases in efficiency and rationalization measures both characterized the current year. On this basis, we continued to concentrate business on high-performance operations and discontinued production at four smaller locations in Germany, France, Rumania and Hungary.

Intensive competition among cartonboard manufacturers provided further opportunities on the procurement markets. However, prices for transport and crude oil price driven input factors rose dramatically.

With 505,000 tons (2004: 470,000 tons) the tonnage processed was up 7.4 % on the previous year. Sales increased by 6.1 % or EUR 46.1 million to EUR 802.2 million. Around half of the growth resulted from acquisitions in the previous year. The main sales market of Western Europe accounted for around 75 % of sales and Eastern Europe for 25 % (2004: 76 % Western Europe, 23 % Eastern Europe, 1 % other). MM Packaging has a large customer base, supplying over 1,000 customers. More than half of the business is achieved with multi-national producers of consumer goods with the five biggest customers accounting for about 45 % of sales. The strongest sales segments are in foodstuffs, cigarettes and detergent packaging.

The operating profit increased by 12.6% to EUR 78.9 million. The operating margin posted was 9.8% following 9.3% in the previous year. The return on capital employed amounted to 32.9% (2004: 33.1%).

As part of the expansion program in the cigarette packaging business, three new gravure machines will be put into operation in the first months of 2006 at sites in Cherkassy in the Ukraine, Izmir in Turkey and in Trier in Germany.

The Annual Report for the financial year 2005 will be available as of April 6, 2006.

Forthcoming Results:
May 15, 2006  Results for the first quarter of 2006

For further information, please contact:

Stephan Sweerts-Sporck, Investor Relations, Mayr-Melnhof Karton AG, Brahmsplatz 6, A-1041 Vienna
Tel.: (+43/1) 50136 – 1180, Fax: (+43/1) 50136 – 1195
e-mail: investor.relations@mm-karton.com,  Website: http://www.mayr-melnhof.com