2007-07-26 11:00:00 CEST
2007-07-26 11:00:00 CEST
REGULATED INFORMATION
UPM-Kymmene - Quarterly report
UPM Interim Report 1 January-30 June 2007
Earnings per share excluding special items for the second quarter were EUR 0.28
(EUR 0.04 for the second quarter of 2006).EBITDA was EUR 411 million, 16.2% of
sales (EUR 398 million, 16.0%). Operating profit excluding special items was
EUR 225 million (EUR 79 million). Result improved due to increased
efficiency of operations
Key figures
Q2/ Q2/ Q1-Q2/ Q1-Q2/ Q1-Q4/
2007 2006 2007 2006 2006
Sales, EUR million 2,537 2,484 5,056 4,944 10,022
EBITDA, EUR million 1) 411 398 829 784 1,678
% of sales 16.2 16.0 16.4 15.9 16.7
Operating profit, -75 -54 146 116 536
EUR million
excluding special 225 79 446 264 725
items, EUR million
Profit before tax, -121 -101 56 35 367
EUR million
excluding special 179 32 356 183 550
items, EUR million
Net profit for the -198 -103 -67 -4 338
period, EUR million
Earnings per share, -0.38 -0.20 -0.13 -0.01 0.65
EUR
excluding special 0.28 0.04 0.53 0.25 0.80
items, EUR
Diluted earnings -0.38 -0.20 -0.13 -0.01 0.65
per share, EUR
Return on equity, % neg. neg. neg. neg. 4.6
excluding special 8.5 1.1 7.9 3.6 5.7
items, %
Return on capital neg. neg. 2.8 2.2 4.7
employed, %
excluding special 8.3 2.7 8.1 4.6 6.2
items, %
Gearing ratio at 58 69 58 69 56
end of period, %
Shareholders' equity 13.11 13.29 13.11 13.29 13.90
per share at end of period, EUR
Net interest-bearing 4,015 4,812 4,015 4,812 4,048
liabilities at end of period, EUR million
Capital employed at 11,120 12,037 11,120 12,037 11,634
end of period, EUR million
Capital expenditure, 160 154 353 331 699
EUR million
Personnel at end of 29,344 32,918 29,344 32,918 28,704
period
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets, excluding the
share of results of associated companies and joint ventures and special items.
Results
Q2 of 2007 compared with Q2 of 2006
Sales for the second quarter of 2007 were EUR 2,537 million (EUR 2,484
million). Paper deliveries increased by 5%.
Operating loss was EUR 75 million, -3.0% of sales (loss of EUR 54 million,
-2.2% of sales). Excluding special items operating profit improved and came to
EUR 225 million, 8.9% of sales (EUR 79 million, 3.2% of sales). Special items
of EUR -300 million, net, were included in the second quarter operating profit.
Gains reported as special items were a gain of EUR 29 million from the sale of
Walki Wisa and a gain of EUR 42 million from that of UPM-Asunnot. An income of
EUR 11 million from the impairment reversal of previously impaired assets was
recorded as a special item.
In June, a decision was made to close the Miramichi coated magazine paper mill
in Canada for nine to twelve months starting late August. The remaining
carrying value of EUR 22 million of the production facilities was written off
as a special item. The mill's profitability has declined due to strengthening
of the Canadian dollar and low US paper prices. Additionally, due to the
temporary shut down of the mill, a charge of approximately EUR 10 million for
personnel expenses was recorded as a special item. The Magazine Papers Division
recorded a EUR 350 million impairment charge of the division's goodwill as a
special item. The primary drivers for the impairment relate to
lower-than-forecast realised magazine paper price and the adverse development
of exchange rates, especially that of the US dollar.
Operating profit excluding special items for the second quarter increased.
Efficiency of operations improved from last year and delivery volumes were
higher. Cost increase was moderate, although wood raw material costs increased
considerably both in Finland and in Central Europe. Wood supply to Finnish
mills was affected by mild winter and announcement of increases in export
duties on Russian wood. Also recycled fibre costs were higher. On the other
hand, energy costs were lower than a year ago. The average price for all
paper deliveries translated into euros was slightly lower than a year ago.
Profitability of exports weakened due to the strengthening of the euro and the
Canadian dollar against the US dollar, which both have appreciated
approximately 10% during the past 12 months.
Increase in the fair value of biological assets net of wood harvested was EUR
14 million (decrease of EUR 102 million). The share of results of associated
companies and joint ventures was EUR 6 million (EUR 8 million).
Loss before tax was EUR 121 million (loss of EUR 101 million). Excluding
special items profit before tax was EUR 179 million (EUR 32 million). Interest
and other finance costs, net, were EUR 54 million (EUR 52 million). Exchange
rate and fair value gains and losses resulted in a gain of EUR 8 million (gain
of EUR 5 million).
Income taxes were EUR 77 million (EUR 2 million). These included EUR 25 million
in income from a decrease of deferred tax liabilities relating to the goodwill
impairment charge and a EUR 57 million charge from a reduction of deferred tax
assets in Canada.
Loss for the second quarter was EUR 198 million (loss of EUR 103 million).
Earnings per share were EUR -0.38 (EUR -0.20) and excluding special items EUR
0.28 (EUR 0.04).
First six months of 2007 compared with first six months of 2006
Sales for January-June were EUR 5,056 million, 2% higher than the EUR 4,944
million in the same period in 2006. Paper deliveries increased by 5%.
Operating profit came to EUR 146 million, 2.9% of sales (EUR 116 million, 2.3%
of sales) and excluding special items EUR 446 million, 8.8% of sales (EUR 264
million, 5.3% of sales).
Increase in costs was slightly above 1% compared with last year. Fixed costs
decreased and energy costs were lower. Recycled fibre costs were higher than a
year ago and cost of wood raw material increased both in Finland and in Central
Europe. The average price for newsprint and uncoated fine paper translated
into euros increased but the average price for magazine paper declined from the
corresponding period last year. Profitability of exports weakened due to the
strengthening of the euro and the Canadian dollar against the US dollar.
The increase in the fair value of biological assets net of wood harvested was
EUR 11 million (decrease of EUR 106 million). The share of results of
associated companies and joint ventures was EUR 27 million (EUR 34 million).
Profit before tax was EUR 56 million (EUR 35 million) and excluding special
items EUR 356 million (EUR 183 million). Interest and other finance costs, net
were EUR 103 million (EUR 98 million). Net interest bearing liabilities
decreased from last year but the average interest rate of borrowings was higher
than a year ago. Exchange rate and fair value gains and losses resulted in a
gain of EUR 11 million (gain of EUR 17 million).
Income taxes were EUR 123 million (EUR 39 million) and the effective tax rate
excluding the impact of special items was 24% (29%).
Loss for the period was EUR 67 million (loss of EUR 4 million). Earnings per
share were EUR -0.13 (EUR -0.01), and excluding special items EUR 0.53 (EUR
0.25). Operating cash flow per share was EUR 0.75 (EUR 0.83).
Paper deliveries
Paper deliveries for the first six months amounted to 5,585,000 (5,325,000)
tonnes. Magazine paper deliveries were 2,344,000 tonnes (2,246,000 tonnes),
newsprint 1,313,000 tonnes (1,314,000 tonnes) and fine and speciality papers
1,928,000 tonnes (1,765,000 tonnes).
Financing
In January-June, cash flow from operating activities, before capital
expenditure and financing, was EUR 392 million (EUR 434 million). The increase
in working capital amounted to EUR 207 million (EUR 80 million).
As of 30 June, gearing ratio was 58% (69% as of 30 June 2006). Equity to
assets ratio at 30 June was 50.0% (47.1%). Net interest-bearing liabilities at
the end of the period were EUR 4,015 million (EUR 4,812 million).
Personnel
In January-June, UPM had an average of 28,966 employees (31,730 employees for
this period last year). The number of employees at the end of June was 29,344
(32,918).
Capital expenditure
For the first half of the year, gross capital expenditure was EUR 353 million,
7.0% of sales (EUR 331 million, 6.7% of sales).
At the Jämsänkoski mill, the EUR 45 million conversion of coated magazine paper
machine 4 into label papers was completed with the paper machine making the
first customer deliveries in May.
The largest ongoing investment, a EUR 325 million rebuild of the recovery plant
at the Kymi pulp mill, is proceeding according to plan.
In April UPM announced a EUR 90 million investment in a new self-adhesive label
materials factory in Poland. The factory is scheduled for start-up in Q4 of
2008.
In Uruguay, UPM's associated company, Metsä-Botnia, is constructing a pulp mill
with an annual capacity of 1 million tonnes. The construction is on schedule
and the mill is estimated to start up in Q3 of 2007.
Changes in the Group's structure
The sale of Walki Wisa was completed in June, resulting in a capital gain of
EUR 29 million. In 2006 Walki Wisa had sales of EUR 287 million and it
employed approximately 950 people.
The sale of UPM-Asunnot Oy was concluded in April. The gain on the sale was EUR
42 million. UPM-Asunnot Oy owned approximately 2,000 rental apartments and
employed 15 people.
Profitability programme
In March 2006, UPM announced an extensive programme for 2006-2008 to restore
its profitability. The profitability programme includes a reduction of
approximately 3,600 employees over the three year period and closures of
uncompetitive paper production capacity. When finalised, the programme is
estimated to result in annual cost savings of approximately EUR 200 million.
The profitability programme has proceeded according to plan. By the end of
June, reduction in the number of personnel as a result of actions under the
profitability programme was approximately 2,400. Cost savings from the
profitability programme have materialised as planned. In 2007 cost savings have
been estimated to be EUR 110 million.
Shares
UPM shares worth, in total, EUR 8,615 million were traded on the Helsinki Stock
Exchange (EUR 9,259 million) during January-June. The highest quotation was EUR
20.59 in February and the lowest EUR 17.67 in May. On the New York Stock
Exchange, the company's shares were traded to a total value of USD 130 million
(182 million).
The Annual General Meeting held on 27 March 2007 approved a proposal by the
Board of Directors to buy back not more than 52,000,000 own shares. The
authorisation is valid for 18 months. The meeting authorised the board to
decide on the disposal of shares so acquired as well as on a free issue of
shares to the company itself so that the total number of shares to be issued to
the company combined with the number of own shares bought back under the
buy-back authorisation may not exceed 1/10 of the total number of shares of the
company. By the end of June this authorisation has not been exercised.
Additionally, the Annual General Meeting authorised the Board of Directors to
decide to issue shares and special rights entitling to shares of the company.
The number of new shares to be issued, including the shares to be obtained
under special rights, will be no more than 250,000,000. Of that amount, the
maximum number that can be issued to the company's shareholders based on their
pre-emptive rights is 250,000,000 shares and the maximum amount that can be
issued deviating from the shareholders' pre-emptive rights in a directed share
issue is 100,000,000 shares. The maximum number of new shares to be issued as
part of the company's incentive programmes is 5,000,000 shares. This
authorisation is valid for no more than three years from the date of the
decision. To date, this authorisation has not been exercised.
The meeting also decided on granting share options in connection with the
company's share-based incentive plans. In the option programmes 2007 A, 2007 B
and 2007 C, the total number of share options is no more than 15,000,000, and
they will entitle to subscribe in total for no more than 15,000,000 new shares
of the company.
In the second quarter of 2007, 5,707,290 shares were subscribed for through
exercising of outstanding share options. The number of shares entered in the
Trade Register as of 30 June 2007 was 528,969,320. Through the issuance
authorisation and share options, the number of shares may increase to a maximum
of 812,451,130.
At the end of the period, the company did not hold any of its own shares.
Apart from the above, the Board of Directors has no current authorisation to
issue shares, convertible bonds or share options.
Litigation
Certain competition authorities are continuing investigations into alleged
antitrust activities with respect to various products of the company.
The U.S. Department of Justice, the EU authorities and the authorities in
several EU Member States, Canada and certain other countries have granted UPM
conditional full immunity with respect to certain conduct disclosed to them.
The U.S. and Canadian investigations are now closed, and the European
Commission has tentatively closed its investigation of the European fine paper,
newsprint, magazine paper, label paper and self-adhesive labelstock markets.
UPM has been named as a defendant in multiple class-action lawsuits against
labelstock and magazine paper manufacturers in the United States. The remaining
litigation matters may last several years. No provisions have been made in
relation to these investigations or litigations.
Outlook for the third quarter
In Europe, demand for printing papers is forecast to grow slightly from the
corresponding quarter of last year, while in North America demand is expected
to decrease. Strong growth in demand is expected to continue in the emerging
markets. UPM estimates its paper deliveries to increase slightly from last year
and average price for all paper deliveries to be about the same as in the
second quarter of 2007.
Demand for self-adhesive label materials is forecast to continue to grow, and
prices are expected to remain stable.
In wood products, strong demand for plywood and sawn timber will continue
during the third quarter. Shortage of birch logs may cause reduction in birch
plywood production during the latter part of the year.
The company's overall cost inflation for 2007 is estimated to be approximately
2% including the expected cost savings from the ongoing profitability programme.
Divisional reviews
Magazine Papers
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q2/Q1-Q2/Q1-Q4/
2007 2007 2006 2006 2006 2006 2007 2006 2006
Sales, EUR million 798 793 905 861 817 771 1,591 1,588 3,354
EBITDA, EUR million 1) 114 113 157 155 145 113 227 258 570
% of sales 14.3 14.2 17.3 18.0 17.7 14.7 14.3 16.2 17.0
Depreciation, -443 -86 -88 -209 -210 -97 -529 -307 -604
amortisation and impairment charges, EUR million
Operating profit, -339 27 75 -62 -85 16 -312 -69 -56
EUR million
% of sales -42.5 3.4 8.3 -7.2 -10.4 2.1 -19.6 -4.3 -1.7
Special items, EUR -371 - 6 -126 -133 - -371 -133 -253
million 2)
Operating profit 32 27 69 64 48 16 59 64 197
excl. special items, EUR million
% of sales 4.0 3.4 7.6 7.4 5.9 2.1 3.7 4.0 5.9
Deliveries, 1,000 t 1,189 1,155 1,288 1,227 1,148 1,098 2,344 2,246 4,761
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) Special items in the second quarter 2007 include a goodwill impairment
charge of EUR 350 million, an impairment charge of EUR 22 million and personnel
costs of EUR 10 million related to the Miramichi paper mill, and an income of
EUR 11 million related to impairment reversals. Special items in the second
quarter 2006 include personnel charges of EUR 20 million related to the
profitability programme, and impairment charges of EUR 113 million related to
the closure of the Voikkaa paper mill. In the third quarter, special items
include personnel charges of EUR 8 million and impairment charges of EUR 3
million at Voikkaa, and impairment charges of EUR 115 million for Miramichi. In
the fourth quarter, special items relate primarily to the capital gain on the
sale of the Rauma power plant.
Q2 of 2007 compared with Q2 of 2006
Operating profit, excluding special items, for Magazine Papers declined to EUR
32 million (EUR 48 million). Sales were EUR 798 million (EUR 817 million).
Paper deliveries had a volume of 1,189,000 (1,148,000) tonnes.
The average price for all magazine paper deliveries translated into euros was
about 6% lower than a year ago. A stronger euro and Canadian dollar weakened
profitability of exports.
In June a decision was made to close the Miramichi coated magazine paper mill
for nine to twelve months starting in late August. The remaining carrying
value of EUR 22 million of the production facilities was written off as a
special item. Additionally, due to the temporary shut down of the mill, a
charge of approximately EUR 10 million for personnel expenses was recorded
as a special item.
Also, the division recorded a EUR 350 million impairment charge of the
division's goodwill. The primary drivers for the impairment relate to
lower-than-forecast realised magazine paper price and the adverse development
of exchange rates.
An income of EUR 11 million from the impairment reversal of previously impaired
assets was recorded as a special item.
January-June of 2007 compared with January-June of 2006
Operating profit, excluding special items, for Magazine Papers was EUR 59
million (EUR 64 million). Sales of EUR 1,591 million were about the same as
last year (EUR 1,588 million). Paper deliveries had a volume of 2,344,000
(2,246,000) tonnes.
Profitability of the division declined. The average price for all magazine
paper deliveries translated into euros was almost 5 % lower than year ago.
Prices were lower in all main markets (in local currencies). A stronger euro
and Canadian dollar weakened the profitability of exports. Cost of wood and
recycled paper increased. Fixed costs, energy and logistic costs were lower
than last year.
Market review
In the first six months of the year, magazine paper demand in Europe continued
to be good, driven by a strong increase in demand in Eastern Europe. Demand for
both coated and uncoated magazine paper increased by about 3% compared with the
same period in 2006. Export of magazine paper from Europe decreased compared
with the previous year. In North America, demand for coated magazine paper
remained the same as a year ago, while uncoated magazine paper demand increased
by about 5%. The average market price for magazine papers in Europe was about
2% down from last year. In North America, USD prices decreased by about 10%.
Newsprint
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q2/Q1-Q2/Q1-Q4/
2007 2007 2006 2006 2006 2006 2007 2006 2006
Sales, EUR million 379 348 380 360 351 345 727 696 1,436
EBITDA, EUR million 1) 100 92 89 98 86 72 192 158 345
% of sales 26.4 26.4 23.4 27.2 24.5 20.9 26.4 22.7 24.0
Depreciation, -47 -48 -48 -48 -47 -47 -95 -94 -190
amortisation and impairment charges,EUR million
Operating profit, 53 44 39 50 34 25 97 59 148
EUR million
% of sales 14.0 12.6 10.3 13.9 9.7 7.2 13.3 8.5 10.3
Special items, EUR - - -2 - -5 - - -5 -7
million 2)
Operating profit 53 44 41 50 39 25 97 64 155
excl. special items, EUR million
% of sales 14.0 12.6 10.8 13.9 11.1 7.2 13.3 9.2 10.8
Deliveries, 1,000 t 683 630 697 666 660 654 1,313 1,314 2,677
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) The special items booked for 2006 relate mainly to the profitability
programme.
Q2 of 2007 compared with Q2 of 2006
Operating profit, excluding special items, for Newsprint improved from EUR 39
million to EUR 53 million. Sales were EUR 379 million (EUR 351 million). Paper
deliveries were 683,000 tonnes (660,000 tonnes).
The average price for all newsprint deliveries translated into euros was about
4% up from the corresponding period in 2006.
January-June of 2007 compared with January-June of 2006
Operating profit, excluding special items, for Newsprint increased from EUR 64
million to EUR 97 million. Sales were 727 million (EUR 696 million). Paper
deliveries were 1,313,000 tonnes (1,314,000 tonnes).
The main contributor to the improved profitability was the higher price of
newsprint. The average price for all newsprint deliveries translated into euros
was over 4% up. Energy costs were lower mainly due to the new biofuel power
plants at the Shotton and Chapelle Darblay mills. On the other hand, the prices
of recycled fibre and wood raw material were higher than a year ago.
Market review
In Europe, demand for standard and improved newsprint was the same as in the
first half of last year. Net exports from Europe decreased. In Europe, the
average market prices for standard newsprint were about 5% up. In the other
markets, with the exception of North America, demand increased but prices were
lower than in the same period last year.
Fine and Speciality Papers
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q2/Q1-Q2/Q1-Q4/
2007 2007 2006 2006 2006 2006 2007 2006 2006
Sales, EUR million 686 699 667 626 627 640 1,385 1,267 2,560
EBITDA, EUR million 1) 92 85 104 106 76 82 177 158 368
% of sales 13.4 12.2 15.6 16.9 12.1 12.8 12.8 12.5 14.4
Depreciation, -53 -53 -56 -55 -71 -55 -106 -126 -237
amortisation and impairment charges, EUR million
Operating profit, 39 32 44 50 -13 27 71 14 108
EUR million
% of sales 5.7 4.6 6.6 8.0 -2.1 4.2 5.1 1.1 4.2
Special items, EUR - - -3 -2 -36 - - -36 -41
million 2)
Operating profit 39 32 47 52 23 27 71 50 149
excl. special items, EUR million
% of sales 5.7 4.6 7.0 8.3 3.7 4.2 5.1 3.9 5.8
Deliveries, 1,000 t 960 968 907 878 884 881 1,928 1,765 3,550
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) In 2006, special items include personnel and impairment charges related to
the profitability programme.
Q2 of 2007 compared with Q2 of 2006
Operating profit, excluding special items, for Fine and Speciality Papers
improved by EUR 16 million to EUR 39 million (EUR 23 million). Sales increased
from EUR 627 million to EUR 686 million. Paper deliveries were 960,000
(884,000) tonnes.
The average price for all fine and speciality paper deliveries translated into
euros was about 1% higher than year ago.
January-June of 2007 compared with January-June of 2006
Operating profit, excluding special items, for Fine and Speciality Papers
improved from EUR 50 million to EUR 71 million. Sales increased from EUR 1,267
million to 1,385 million. Paper deliveries increased by 163,000 tonnes to
1,928,000 (1,765,000). More efficient use of capacity and recent investments at
the Changshu mill were the main contributors to the higher volumes.
The profitability of the division improved from last year. Paper deliveries
were higher and the average price for all fine and speciality paper deliveries
increased by about 1%. Higher wood fibre costs and tightened availibility of
wood in Finland had a negative effect on profitability.
Market review
In Europe, demand for coated fine paper increased by about 2% compared with the
same period last year. Demand for uncoated fine paper remained the same as a
year ago. Good demand for label and packaging papers continued. In Europe,
average market price for coated fine paper was about 2% up and the price for
uncoated fine paper increased by about 7% compared with the same period last
year. In Asia, demand and prices for fine paper increased from last year.
Label Materials
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q2/Q1-Q2/Q1-Q4/
2007 2007 2006 2006 2006 2006 2007 2006 2006
Sales, EUR million 260 261 251 240 245 251 521 496 987
EBITDA, EUR million 1) 21 26 25 20 24 24 47 48 93
% of sales 8.1 10.0 10.0 8.3 9.8 9.6 9.0 9.7 9.4
Depreciation, -8 -8 -8 -9 -8 -7 -16 -15 -32
amortisation and impairment charges, EUR million
Operating profit, 13 18 17 11 16 17 31 33 61
EUR million
% of sales 5.0 6.9 6.8 4.6 6.5 6.8 6.0 6.7 6.2
Special items, EUR - - - - - - - - -
million
Operating profit 13 18 17 11 16 17 31 33 61
excl. special items, EUR million
% of sales 5.0 6.9 6.8 4.6 6.5 6.8 6.0 6.7 6.2
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
Q2 of 2007 compared with Q2 of 2006
Operating profit, excluding special items, for the Label Division was EUR 13
million (EUR 16 million). Sales increased by 6% from EUR 245 million to EUR 260
million.
Delivery volumes grew in the European and North American markets. In Asia,
volumes increased due to the start-up of the new factory in China at the end of
2006.
January-June of 2007 compared with January-June of 2006
Operating profit, excluding special items, for the Label Division was EUR 31
million (EUR 33 million). Sales increased by 5% from EUR 496 million to EUR 521
million.
The profitability of the division continued to be good even though costs
increased due to expansion of operations. Sales were affected by the stronger
euro and change in the sales and product mix. The average price of labelstock
in local currencies remained stable. There were no marked changes in raw
material prices. The strong growth in the RFID business continued.
Market review
During the first six months of the year good demand for labelstock continued.
Wood Products
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q2/Q1-Q2/Q1-Q4/
2007 2007 2006 2006 2006 2006 2007 2006 2006
Sales, EUR million 326 314 287 310 378 346 640 724 1,321
EBITDA, EUR million 1) 51 42 24 22 33 25 93 58 104
% of sales 15.6 13.4 8.4 7.1 8.7 7.2 14.5 8.0 7.9
Depreciation, -11 -10 -10 -11 -11 -11 -21 -22 -43
amortisation and impairment charges, EUR million
Operating profit, 41 32 14 104 22 4 73 26 144
EUR million
% of sales 12.6 10.2 4.9 33.5 5.8 1.2 11.4 3.6 10.9
Special items, EUR - - - 93 - -10 - -10 83
million 2)
Operating profit 41 32 14 11 22 14 73 36 61
excl. special items, EUR million
% of sales 12.6 10.2 4.9 3.5 5.8 4.0 11.4 5.0 4.6
Deliveries, plywood 247 255 243 205 232 251 502 483 931
1,000 m3
Deliveries, sawn 637 587 598 517 622 580 1,224 1,202 2,317
timber 1,000 m3
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) Special items in the first quarter 2006 include a loss of EUR 10 million
from the sale of the Loulay plywood mill, and in the third quarter, a capital
gain of EUR 93 million on the sale of Puukeskus.
Q2 of 2007 compared with Q2 of 2006
Operating profit, excluding special items, for Wood Products increased from EUR
22 million to EUR 41 million. Sales came to EUR 326 million (EUR 378 million).
Excluding Puukeskus Oy, which was sold in August 2006, sales increased from the
second quarter of 2006. Plywood deliveries were 247,000 (232,000) cubic metres
and sawn timber deliveries 637,000 (622,000) cubic metres.
January-June of 2007 compared with January-June of 2006
Operating profit, excluding special items, for Wood Products increased from EUR
36 million to EUR 73 million. Sales came to EUR 640 million (EUR 724 million).
Plywood deliveries were 502,000 (483,000) cubic metres and sawn timber
deliveries 1,224,000 (1,202,000) cubic metres.
The profitability of the division improved especially in sawmilling operations
despite the increase in wood raw material costs and tight supply of birch logs.
Market review
In the first half of the year, birch and spruce plywood demand continued strong
in all markets. Plywood prices were higher than a year ago. The markets for
veneers and further processed goods were solid. Redwood and whitewood sawn
timber demand was strong and prices increased clearly. The supply of birch logs
was tight. Cost of wood raw material increased.
Other Operations
EUR million Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q2/Q1-Q2/Q1-Q4/
2007 2007 2006 2006 2006 2006 2007 2006 2006
Sales 1) 214 234 224 206 189 204 448 393 823
EBITDA 2) 32 60 69 27 33 70 92 103 199
Depreciation, -5 -10 -9 -9 -9 -5 -15 -14 -32
amortisation and impairment charges
Operating profit
Forestry 3) 34 28 23 20 -82 20 62 -62 -19
Energy Department, 19 28 36 - 18 40 47 58 94
Finland
Other and 59 -9 -10 -18 28 -5 50 23 -5
eliminations 4)
Operating profit, 112 47 49 2 -36 55 159 19 70
total
Special items, 4) 71 - -6 -1 41 -5 71 36 29
Operating profit 41 47 55 3 -77 60 88 -17 41
excl. special items
1) Includes sales outside the Group.
2) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and special items.
3) The second quarter of 2006 includes a change of EUR 102 million of the
decrease in the fair value of biological assets and wood harvested.
4) Special items in the second quarter 2007 include capital gains of EUR 42
million related to the sale of UPM-Asunnot and EUR 29 million related to the
sale of Walki Wisa. Special items in 2006 include in the first quarter the
donation of EUR 5 million to UPM-Kymmene Cultural Foundation, and in the
second quarter the capital gain of EUR 41 million for the sale of the Group
head office real estate.
Q2 of 2007 compared with Q2 of 2006
Excluding special items, operating profit for Other Operations was EUR 41
million (EUR -77 million). Sales were EUR 214 million (EUR 189 million).
Operating profit of Forestry was EUR 34 million (EUR -82 million). The increase
in the fair value of biological assets (growing trees) was EUR 49 million
(decrease EUR 76 million). The cost of wood raw material harvested from the
Group's forests was EUR 35 million (EUR 26 million).
Operating profit of the Energy Department in Finland was EUR 19 million (EUR 18
million). Hydropower availability was good. The price of electricity at Nord
Pool was significantly lower than in the corresponding period a year ago.
January-June of 2007 compared with January-June of 2006
Excluding special items, operating profit for Other Operations was EUR 88
million (EUR -17 million). Sales were EUR 448 million (EUR 393 million).
The increase in the fair value of biological assets (growing trees) was EUR 72
million (decrease EUR 60 million). The cost of wood raw material harvested from
the Group's forests was EUR 61 million (EUR 46 million).
Associated companies and joint ventures
EUR million Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q2/Q1-Q2/Q1-Q4/
2007 2007 2006 2006 2006 2006 2007 2006 2006
Share of result after tax
Oy Metsä-Botnia Ab 12 21 18 24 13 14 33 27 69
Pohjolan Voima Oy -5 - -9 -7 -5 7 -5 2 -14
Other -1 - - 1 - 5 -1 5 6
Total 6 21 9 18 8 26 27 34 61
Deliveries
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/
2007 2007 2006 2006 2006 2006 2007 2006
Paper deliveries
Magazine papers, 1,189 1,155 1,288 1,227 1,148 1,098 2,344 2,246
1,000 t
Newsprint, 1,000 t 683 630 697 666 660 654 1,313 1,314
Fine and speciality 960 968 907 878 884 881 1,928 1,765
papers, 1,000 t
Paper deliveries 2,832 2,753 2,892 2,771 2,692 2,633 5,585 5,325
total
Wood products deliveries
Plywood 1,000 m3 247 255 243 205 232 251 502 483
Sawn timber 1,000 m3 666 617 621 557 663 616 1,283 1,279
Q1-Q4/
2006
Paper deliveries
Magazine papers, 4,761
1,000 t
Newsprint, 1,000 t 2,677
Fine and speciality 3,550
papers, 1,000 t
Paper deliveries 10,988
total
Wood products deliveries
Plywood 1,000 m3 931
Sawn timber 1,000 m3 2,457
Helsinki, 26 July 2007
UPM-Kymmene Corporation
Board of Directors
This Interim Report is unaudited
Financial information
Condensed consolidated income statement
EUR million Q2/ Q2/ Q1-Q2/ Q1-Q2/ Q1-Q4/
2007 2006 2007 2006 2006
Sales 2,537 2,484 5,056 4,944 10,022
Other operating 80 67 98 108 231
income
Costs and expenses -2,145 -2,155 -4,264 -4,285 -8,514
Change in fair 14 -102 11 -106 -126
value of biological assets and wood harvested
Share of results of 6 8 27 34 61
associated companies and joint ventures
Depreciation, -567 -356 -782 -579 -1,138
amortisation and impairment charges
Operating profit -75 -54 146 116 536
Gains/losses on - - 2 - -2
available-for-sale investments, net
Exchange rate and 8 5 11 17 18
fair value gains and losses
Interest and other -54 -52 -103 -98 -185
finance costs
Profit before tax -121 -101 56 35 367
Income taxes -77 -2 -123 -39 -29
Profit for the period -198 -103 -67 -4 338
Attributable to:
Equity holders of -198 -103 -67 -4 340
the parent company
Minority interest - - - - -2
-198 -103 -67 -4 338
Basic earnings per -0.38 -0.20 -0.13 -0.01 0.65
share, EUR
Diluted earnings -0.38 -0.20 -0.13 -0.01 0.65
per share, EUR
Condensed consolidated balance sheet
EUR million 30.06.2007 30.06.2006 31.12.2006
ASSETS
Non-current assets
Goodwill 1,163 1,514 1,514
Other intangible 419 510 461
assets
Property, plant and 6,375 6,742 6,500
equipment
Biological assets 1,032 1,063 1,037
Investments in 1,185 1,140 1,177
associated companies and joint ventures
Deferred tax assets 339 307 362
Other non-current assets 252 270 304
10,765 11,546 11,355
Current assets
Inventories 1,294 1,272 1,255
Trade and other 1,771 1,764 1,660
receivables
Cash and cash equivalents 104 151 199
3,169 3,187 3,114
Assets held for sale - 124 -
Total assets 13,934 14,857 14,469
EQUITY AND LIABILITIES
Equity attributable to the equity holders of the parent company
Share capital 890 890 890
Share premium reserve 825 826 826
Fair value and 325 216 189
other reserves
Retained earnings 4,893 5,021 5,366
6,933 6,953 7,271
Minority interest 16 21 18
Total equity 6,949 6,974 7,289
Non-current liabilities
Deferred tax liabilities 762 836 790
Non-current 3,053 4,082 3,353
interest-bearing liabilities
Other non-current 613 654 627
liabilities
4,428 5,572 4,770
Current liabilities
Current 1,118 981 992
interest-bearing liabilities
Trade and other payables 1,439 1,286 1,418
2,557 2,267 2,410
Liabilities related - 44 -
to assets held for sale
Total liabilities 6,985 7,883 7,180
Total equity and 13,934 14,857 14,469
liabilities
Condensed consolidated statement of changes in equity
Attributable to equity holders of the parent
EUR million Share Treasury Trans- Share Fair
capital shares lation premium value
diffe- reserve and
rences other
reserves
Balance at 1 January 2006 890 -3 -34 826 233
Transactions with equity holders
Share options exercised - - - - -
Reissuance of - 3 - - -
treasury shares
Share-based - - - - 4
compensation
Dividend paid - - - - -
Income and expenses recognised directly in equity
Translation differences - - -42 - -
Other items - - - - -1
Net investment - - 8 - -
hedge, net of tax
Cash flow hedges
recorded in equity, - - - - 39
net of tax
transferred to - - - - 9
income statement, net of tax
Available-for-sale investments
transferred to - - - - -
income statement, net of tax
Profit for the period - - - - -
Balance at 30 June 2006 890 - -68 826 284
Balance at 1 January 2007 890 - -89 826 278
Transactions with equity holders
Share options exercised - - - - 104
Share-based - - - - 6
compensation, net of tax
Dividend paid - - - - -
Transfers and other - - - -1 16
Income and expenses recognised directly in equity
Translation differences - - 12 - -
Other Items - - - - -1
Cash flow hedges
recorded in equity, - - - - 17
net of tax
transferred to - - - - -16
income statement, net of tax
Available-for-sale investments
transferred to - - - - -2
income statement, net of tax
Profit for the period - - - - -
Balance at 30 June 2007 890 - -77 825 402
EUR million Retained Total Minority Equity
earnings interest total
Balance at 1 January 2006 5,415 7,327 21 7,348
Transactions with equity holders
Share options exercised - - - -
Reissuance of 1 4 - 4
treasury shares
Share-based - 4 - 4
compensation
Dividend paid -392 -392 - -392
Income and expenses recognised directly in equity
Translation differences - -42 - -42
Other items 1 - - -
Net investment - 8 - 8
hedge, net of tax
Cash flow hedges
recorded in equity, - 39 - 39
net of tax
transferred to - 9 - 9
income statement, net of tax
Available-for-sale investments
transferred to - - - -
income statement, net of tax
Profit for the period -4 -4 - -4
Balance at 30 June 2006 5,021 6,953 21 6,974
Balance at 1 January 2007 5,366 7,271 18 7,289
Transactions with equity holders
Share options exercised - 104 - 104
Share-based - 6 - 6
compensation, net of tax
Dividend paid -392 -392 - -392
Transfers and other -16 -1 -2 -3
Income and expenses recognised directly in equity
Translation differences - 12 - 12
Other items 2 1 - 1
Cash flow hedges
recorded in equity, - 17 - 17
net of tax
transferred to - -16 - -16
income statement, net of tax
Available-for-sale investments
transferred to - -2 - -2
income statement, net of tax
Profit for the period -67 -67 - -67
Balance at 30 June 2007 4,893 6,933 16 6,949
Condensed consolidated cash flow statement
EUR million Q1-Q2/Q1-Q2/Q1-Q4/
2007 2006 2006
Cash flow from operating activities
Profit for the period -67 -4 338
Adjustments, total 864 657 1,195
Change in working -207 -80 21
capital
Cash generated from 590 573 1,554
operations
Finance costs, net -105 -88 -180
Income taxes paid -93 -51 -159
Net cash from 392 434 1,215
operating activities
Cash flow from investing activities
Acquisitions and -11 -41 -68
share purchases
Purchases of -359 -301 -635
intangible and tangible assets
Asset sales and 182 91 389
other investing
cash flow
Net cash used in -188 -251 -314
investing activities
Cash flow from financing activities
Change in loans and -11 111 -559
other financial items
Share options 104 - -
exercised
Dividends paid -392 -392 -392
Net cash used in -299 -281 -951
financing activities
Change in cash and -95 -98 -50
cash equivalents
Cash and cash 199 251 251
equivalents at beginning of period
Foreign exchange - -2 -2
effect on cash
Change in cash and -95 -98 -50
cash equivalents
Cash and cash 104 151 199
equivalents at end of period
Operating cash flow 0.75 0.83 2.32
per share, EUR
Quarterly information
EUR million Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/
2007 2007 2006 2006 2006 2006 2007
Sales by segment
Magazine Papers 798 793 905 861 817 771 1,591
Newsprint 379 348 380 360 351 345 727
Fine and Speciality 686 699 667 626 627 640 1,385
Papers
Label Materials 260 261 251 240 245 251 521
Wood Products 326 314 287 310 378 346 640
Other Operations 214 234 224 206 189 204 448
Internal sales -126 -130 -131 -108 -123 -97 -256
Sales, total 2,537 2,519 2,583 2,495 2,484 2,460 5,056
Operating profit by segment
Magazine Papers -339 27 75 -62 -85 16 -312
Newsprint 53 44 39 50 34 25 97
Fine and Speciality 39 32 44 50 -13 27 71
Papers
Label Materials 13 18 17 11 16 17 31
Wood Products 41 32 14 104 22 4 73
Other Operations 112 47 49 2 -36 55 159
Share of results of 6 21 9 18 8 26 27
associated companies and joint ventures
Operating profit -75 221 247 173 -54 170 146
(loss), total
% of sales -3.0 8.8 9.6 6.9 -2.2 6.9 2.9
Gains on - 2 -2 - - - 2
available-for-sale investments, net
Exchange rate and 8 3 4 -3 5 12 11
fair value gains and losses
Interest and other -54 -49 -46 -41 -52 -46 -103
finance costs, net
Profit (loss) -121 177 203 129 -101 136 56
before tax
Income taxes -77 -46 -8 18 -2 -37 -123
Profit (loss) for -198 131 195 147 -103 99 -67
the period
Basic earnings per -0.38 0.25 0.37 0.29 -0.20 0.19 -0.13
share, EUR
Diluted earnings -0.38 0.25 0.38 0.28 -0.20 0.19 -0.13
per share, EUR
Average number of 527,111 523,261 523,258 523,256 523,256 523,108 525,186
shares basic (1,000)
Average number of 530,980 527,086 526,416 525,938 525,874 525,936 529,033
shares diluted (1,000)
Special items in operating profit
Special items in operating profit are specified in the divisional
reviews on pages 5-8.
Magazine Papers -371 - 6 -126 -133 - -371
Newsprint - - -2 - -5 - -
Fine and Speciality - - -3 -2 -36 - -
papers
Label Materials - - - - - - -
Wood Products - - - 93 - -10 -
Other Operations 71 - -6 -1 41 -5 71
Share of results of - - - - - - -
associated companies and joint ventures
Special items in -300 - -5 -36 -133 -15 -300
operating profit, total
Special items after - - 6 - - - -
operating profit
Special items -32 - 35 20 -29 - -32
reported in taxes (see page 3)
Special items, total -332 - 36 -16 -162 -15 -332
Operating profit, 225 221 252 209 79 185 446
excluding special items
% of sales 8.9 8.8 9.8 8.4 3.2 7.5 8.8
Profit before tax, 179 177 202 165 32 151 356
excluding special items
% of sales 7.1 7.0 7.8 6.6 1.3 6.1 7.0
Earnings per share, 0.28 0.25 0.30 0.25 0.04 0.21 0.53
excluding special items, EUR
Return on equity 8.5 7.3 8.7 7.2 1.1 6.1 7.9
excl. special items, %
Return of capital 8.3 7.9 8.7 7.1 2.7 6.4 8.1
empl. excl. special items, %
EUR million Q1-Q2/ Q1-Q4/
2006 2006
Sales by segment
Magazine Papers 1,588 3,354
Newsprint 696 1,436
Fine and Speciality 1,267 2,560
Papers
Label Materials 496 987
Wood Products 724 1,321
Other Operations 393 823
Internal sales -220 -459
Sales, total 4,944 10,022
Operating profit by segment
Magazine Papers -69 -56
Newsprint 59 148
Fine and Speciality 14 108
Papers
Label Materials 33 61
Wood Products 26 144
Other Operations 19 70
Share of results of 34 61
associated companies and joint ventures
Operating profit 116 536
(loss), total
% of sales 2.3 5.3
Gains on - -2
available-for-sale investments, net
Exchange rate and 17 18
fair value gains and losses
Interest and other -98 -185
finance costs, net
Profit (loss) 35 367
before tax
Income taxes -39 -29
Profit (loss) for -4 338
the period
Basic earnings per -0.01 0.65
share, EUR
Diluted earnings -0.01 0.65
per share, EUR
Average number of 523,182 523,220
shares basic (1,000)
Average number of 525,905 526,041
shares diluted (1,000)
Special items in operating profit
Special items in operating profit are specified in
the divisional reviews on pages 5-8.
Magazine Papers -133 -253
Newsprint -5 -7
Fine and Speciality -36 -41
papers
Label Materials - -
Wood Products -10 83
Other Operations 36 29
Share of results of - -
associated companies and joint ventures
Special items in -148 -189
operating profit, total
Special items after - 6
operating profit
Special items -29 26
reported in taxes (see page 3)
Special items, total -177 -157
Operating profit, 264 725
excluding special items
% of sales 5.3 7.2
Profit before tax, 183 550
excluding special items
% of sales 3.7 5.5
Earnings per share, 0.25 0.80
excluding special items, EUR
Return on equity 3.6 5.7
excl. special items, %
Return of capital 4.6 6.2
empl. excl. special items, %
Changes in property, plant and equipment
EUR million Q1-Q2/Q1-Q2/Q1-Q4/
2007 2006 2006
Book value at 6,500 7,316 7,316
beginning of period
Capital expenditure 325 284 604
Decreases -46 -237 -325
Depreciation -381 -412 -804
Impairment charges -22 -128 -243
Impairment reversal 11 - -
Translation -13 -81 -48
difference and other changes
Book value at end 6,374 6,742 6,500
of period
Commitments and contingencies
EUR million 30.06.2007 30.06.2006 31.12.2006
Own commitments
Mortgages 94 93 92
On behalf of associated companies and joint ventures
Guarantees for loans 11 14 12
On behalf of others
Guarantees for loans - 2 1
Other guarantees 5 6 5
Other own commitments
Leasing commitments 21 23 23
for the next 12 months
Leasing commitments 90 107 94
for subsequent periods
Other commitments 77 68 69
Capital commitments
EUR million Completion Total By 31.12. Q1-Q2/ After
cost 2006 2007 30.6.2007
Pulp mill rebuild, June 2008 325 25 113 187
Kymi
New Poland mill, November 2008 90 - 4 86
UPM Raflatac
New USA mill, UPM March 2008 75 8 21 46
Raflatac, Dixon
New Bioboiler, September 2009 72 - 4 68
Caledonian
PM5 quality June 2008 38 - 2 36
upgrade, Jämsänkoski
Notional amounts of derivative financial instruments
EUR million 30.06.2007 30.06.2006 31.12.2006
Currency derivatives
Forward contracts 3,557 5,880 4,293
Options, bought 37 10 20
Options, written 37 10 10
Swaps 557 574 570
Interest rate derivatives
Forward contracts 2,646 2,448 2,500
Swaps 2,496 2,651 2,566
Other derivatives
Forward contracts 14 28 13
Swaps 8 25 16
Related party (associated companies and joint ventures) transactions and
balances
EUR million Q1-Q2/Q1-Q2/Q1-Q4/
2007 2006 2006
Sales to associated 41 23 61
companies
Purchases from 215 191 448
associated companies
Non-current - 4 -
receivables at end of period
Trade and other 19 13 20
receivables at end of period
Trade and other 33 27 23
payables at end of period
Key exchange rates for the euro at end of period
30.6.2007 31.3.2007 31.12.2006 30.9.2006 30.6.2006
USD 1.3505 1.3318 1.3170 1.2660 1.2713
CAD 1.4245 1.5366 1.5281 1.4136 1.4132
JPY 166.63 157.32 156.93 149.34 145.75
GBP 0.6740 0.6798 0.6715 0.6777 0.6921
SEK 9.2525 9.3462 9.0404 9.2797 9.2385
31.3.2006
USD 1.2104
CAD 1.4084
JPY 142.42
GBP 0.6964
SEK 9.4315
Basis of preparation
This unaudited financial report has been prepared in accordance with the
accounting policies set out in International Accounting Standard 34 on Interim
Financial Reporting and in the Group's Consolidated Financial Statements for
2006. Income tax expense is recognised based on the best estimate of the
weighted average annual income tax rate expected for the full financial year.
The Group has adopted the following standard:
IFRS 7 Financial Instruments: Disclosures, and a complementary amendment to IAS
1 Presentation of Financial Statements - Capital Disclosures, effective for
annual periods beginning on or after 1 January 2007. IFRS 7 introduces new
disclosures to improve the information about financial instruments. The
amendment to IAS 1 introduces disclosures about how an entity manages its
capital. Adoption of IFRS 7 and the amendment to IAS 1 will expand disclosures
presented in the annual financial statements.
Calculation of key indicators
Return on equity, %:
(Profit before tax - income taxes) / Shareholders' equity (average) x 100
Return on capital employed, %:
(Profit before tax + interest expenses and other financial expenses) / (Balance
sheet total - non-interest-bearing liabilities (average)) x 100
Earnings per share:
Profit for the period attributable to equity holders of parent company /
Adjusted average number of shares during the period excluding own shares
It should be noted that certain statements herein, which are not historical
facts, including, without limitation, those regarding expectations for market
growth and developments; expectations for growth and profitability; and
statements preceded by "believes", "expects", "anticipates", "foresees", or
similar expressions, are forward-looking statements. Since these statements are
based on current plans, estimates and projections, they involve risks and
uncertainties which may cause actual results to materially differ from those
expressed in such forward-looking statements. Such factors include, but are not
limited to: (1) operating factors such as continued success of manufacturing
activities and the achievement of efficiencies therein including the
availability and cost of production inputs, continued success of product
development, acceptance of new products or services by the Group's
targeted customers, success of the existing and future collaboration
arrangements, changes in business strategy or development plans or targets,
changes in the degree of protection created by the Group's patents and other
intellectual property rights, the availability of capital on acceptable terms;
(2) industry conditions, such as strength of product demand, intensity of
competition, prevailing and future global market prices for the Group's
products and the pricing pressures thereto, financial condition of the
customers and the competitors of the Group, the potential introduction of
competing products and technologies by competitors; and (3) general economic
conditions, such as rates of economic growth in the Group's principal
geographic markets or fluctuations in exchange and interest rates. For more
detailed information about risk factors, see pages 15-17 of the company's
annual report 2006.
UPM-Kymmene Corporation
Pirkko Harrela
Executive Vice President, Corporate Communications
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