European paper, forest product makers’ results hit non-recurring items

In the first of six planned Special Comments outlining accounting observations on the 2007 results of companies in key sectors, Moody’s Investors Service has reviewed the results recently announced by Europe‘s largest paper and forest product manufacturers.

The companies covered are M-real Oyj (rated B3/NP/negative), Norske Skogindustrier ASA (Ba2/rating under review for possible downgrade), Sappi Limited (Ba1/negative), Stora Enso Oyj (Baa3/P-3/negative) and UPM-Kymmene Oyj (Baa3/stable).

“One of the key features we note in the paper and forest products industry at the current time is the identification of non-recurring items, and the reporting of underlying profitability,” said Philip Robinson, a Moody’s Vice President-Senior Accounting Analyst and author of the report. “We concur with the issuers’ assessments in many instances; however, with regard to restructuring, given the industry-wide structural changes that are currently taking place, we generally do not regard these charges as unusual.”

The report, entitled “Moody’s Accounting Observations on the 2007 Results of Europe’s Largest Paper and Forest Products Manufacturers”, includes a comparison of items identified as non-recurring by the five issuers with those considered as non-recurring by the rating agency, and gives an indication of Moody’s view of underlying profitability, together with our observations on the comparability of performance measures, leverage ratios and retained cash flows.