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2008-07-24 08:30:00 CEST 2008-07-24 08:30:02 CEST REGULATED INFORMATION UPM-Kymmene - Interim report (Q1 and Q3)UPM Interim Report 1 January-30 June 2008UPM-Kymmene Corporation Interim Report 24 July 2008 at 09:30 Earnings per share for the second quarter were EUR 0.18 (EUR -0.38 for the second quarter of 2007), excluding special items EUR 0.17 (0.28). Operating profit was EUR 157 million (a loss of 75 million), excluding special items EUR 155 million (225 million). Increase of overall costs for the full year is still expected to be about 2%. Key figures Q2/ Q2/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 07 08 07 07 Sales, EUR million 2,378 2,537 4,788 5,056 10,035 EBITDA, EUR million 313 411 650 829 1,546 1) % of sales 13.2 16.2 13.6 16.4 15.4 Operating profit, 157 -75 350 146 483 EUR million excluding special 155 225 343 446 835 items, EUR million Profit before tax, 115 -121 249 56 292 EUR million excluding special 113 179 242 356 644 items, EUR million Net profit for the 90 -198 193 -67 81 period, EUR million Earnings per share, 0.18 -0.38 0.38 -0.13 0.16 EUR excluding special 0.17 0.28 0.36 0.53 1.00 items, EUR Diluted earnings 0.18 -0.38 0.38 -0.13 0.16 per share, EUR Return on equity,% 5.5 neg. 5.8 neg. 1.2 excluding special 5.4 8.5 5.6 7.9 7.4 items, % Return on capital 5.8 neg. 6.2 2.8 4.3 employed, % excluding special 5.7 8.3 6.0 8.1 7.4 items, % Gearing ratio at 68 58 68 58 59 end of period, % Shareholders' 12.64 13.11 12.64 13.11 13.21 equity per share at end of period,EUR Net interest-bearing 4,479 4,015 4,479 4,015 3,973 liabilities at end of period, EUR million Capital employed at 11,260 11,120 11,260 11,120 11,098 end of period, EUR million Capital expenditure, 137 160 274 353 708 EUR million Personnel at end 27,059 29,344 27,059 29,344 26,352 of period 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets, the share of results of associated companies and joint ventures, and special items. Results Q2 of 2008 compared with Q2 of 2007 Sales for the second quarter of 2008 were EUR 2,378 million (2,537 million). Paper deliveries decreased by 6% and deliveries of wood products by 5%. Operating profit was EUR 157 million, 6.6% of sales (loss of EUR 75 million, -3.0% of sales). Excluding special items, operating profit declined to EUR 155 million, 6.5% of sales (225 million, 8.9% of sales). Last year, there were special items of EUR -300 million, net, including EUR 350 million of goodwill impairments. The decrease of operating profit excluding special items was caused mainly by higher costs and significantly lower timber prices. Wood and recovered paper costs increased considerably in the latter part of last year, and the high level has persisted. Euro on average has strengthened 17% against GBP and 16% against USD. Translated into euros, the average paper prices were slightly higher than last year. Efficiency improvements in paper-making and the higher average paper prices did not compensate for the cost increases. Increase in the fair value of biological assets, net of wood harvested, was EUR 20 million (14 million). The share of results of associated companies and joint ventures was EUR 21 million (6 million). Profit before tax was EUR 115 million (loss of 121 million). Excluding special items, profit before tax was EUR 113 million (179 million). Interest and other finance costs, net, were EUR 43 million (54 million). Exchange rate and fair value gains and losses resulted in a loss of EUR 1 million (gain of 8 million). Income taxes were EUR 25 million (77 million). Profit for the second quarter was EUR 90 million (loss of 198 million). Earnings per share were EUR 0.18 (-0.38) and excluding special items EUR 0.17 (0.28). January-June of 2008 compared with January-June of 2007 Sales for January-June were EUR 4,788 million, 5% lower than the EUR 5,056 million in the same period in 2007. Operating profit came to EUR 350 million, 7.3% of sales (146 million, 2.9% of sales) and excluding special items EUR 343 million, 7.2% of sales (446 million, 8.8% of sales). Sales decreased largely because of the divestment of Walki Wisa industrial wrappings business in 2007, the stronger euro, and lower delivery volumes. Both GBP and USD have depreciated 15% against the euro, affecting sales and profitability. The increase in costs from those of the first half 2007 was about 3%. However, the costs remained almost unchanged from the second half of last year. The operating profit decline was mainly caused by the increase in wood costs. Recovered paper, purchased electricity and fuel prices were also higher than last year. Delivery volumes of the paper divisions decreased by 3%. The Miramichi magazine paper mill in Canada was closed last year. Production was curtailed in the Newsprint and Fine and Speciality Paper Divisions. However, the efficiency of paper production improved. Average paper prices in euros were about the same as last year. Label Division profitability continued to be weak, as prices were lower and costs higher. Further weakening of timber market led to lower prices which combined with the increased wood costs caused the decrease of Wood Products' profitability. In Other Operations, the Energy Department in Finland improved its profitability, benefiting from good availability of hydropower and increased electricity market price. The increase in the fair value of biological assets net of wood harvested was EUR 48 million (11 million). The share of results of associated companies and joint ventures was EUR 43 million (27 million). The improvement was achieved as the new pulp mill of the associated company Metsä-Botnia was started up in Uruguay in the last quarter of 2007. Profit before tax was EUR 249 million (56 million) and excluding special items EUR 242 million (356 million). Interest and other finance costs, net, were EUR 92 million (103 million). Exchange rate and fair value gains and losses resulted in a loss of EUR 11 million (gain of 11 million). Income taxes were EUR 56 million (123 million), and the effective tax rate excluding the impact of special items was 23% (24%). Profit for the period was EUR 193 million (loss of 67 million). Earnings per share were EUR 0.38 (-0.13), and excluding special items EUR 0.36 (0.53). Operating cash flow per share was EUR 0.19 (0.75). Paper deliveries Paper deliveries for the first six months amounted to 5,425,000 tonnes (5,585,000). Magazine paper deliveries totalled 2,243,000 tonnes (2,344,000), newsprint 1,278,000 tonnes (1,313,000), and fine and speciality papers 1,904,000 tonnes (1,928,000). Financing In January-June, cash flow from operating activities, before capital expenditure and financing, was EUR 96 million (392 million). The increase in working capital amounted to EUR 245 million (207 million), of which about half is attributable to wood procurement operations. The cash flow was affected by cash contribution in the UK pension plans, and settlement of the restructuring provisions related to the closure of the Miramichi paper mill in 2007. As of 30 June, the gearing ratio was 68% (58% as of 30 June 2007). Equity to assets ratio on 30 June was 47.4% (50.0%). Net interest-bearing liabilities at the end of the period were EUR 4,479 million (4,015 million). Personnel In January-June, UPM had an average of 26,274 employees (28,966 employees for the same period last year). The number of employees at the end of June was 27,059 (29,344). Capital expenditure For the first half of the year, gross capital expenditure was EUR 274 million, 5.7% of sales (353 million, 7.0% of sales). The rebuild of the recovery plant at the Kymi pulp mill was completed in June. The new plant improves energy self-sufficiency and efficiency of the mill. In addition, CO2 and other emissions are reduced. The total cost of the project is estimated to amount to EUR 345 million. The project to improve the paper quality of Jämsänkoski PM5 was completed in June. In April, UPM announced a EUR 12 million investment to build a wood plastic composite mill in Germany. The mill is scheduled to start production at the end of the year and will employ about 50 people. The largest ongoing investment, of EUR 90 million, is to build a new self-adhesive label materials factory in Poland. The project is scheduled for start-up in the last quarter of 2008. In April 2008, UPM signed an agreement to form a joint venture company to build a forest industry facility in the Vologda region of Northwest Russia. The planned industrial complex would include a modern pulp mill, a sawmill, and an OSB building panels mill. Providing the project proceeds as planned, decisions on the pulp mill investment will be considered earliest in 2009. Profitability improvement 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 its three-year span and closures of uncompetitive paper production capacity. When finalised, the programme is estimated to result in annual cost savings of approximately EUR 200 million. By the end of June, reduction in the number of personnel as a result of actions under the profitability programme was approximately 3,400. Cost savings from the profitability programme have materialised as planned. In 2008 cost savings are estimated to be EUR 150 million comparing to the cost level of 2006. As a result of continuing cost competitiveness review UPM announced further actions in December 2007 that included closure of Miramichi magazine paper mill in Canada and temporary shutdowns of newsprint and fine and speciality paper capacity. The annualised cost savings are estimated to be EUR 50 to EUR 70 million. Shares UPM shares worth, in total, EUR 5,326 million were traded on the OMX Nordic Exchange Helsinki (8,615 million) during January-June. The highest quotation was EUR 13.87, in January, and the lowest EUR 10.00, in June. The Annual General Meeting held on 26 March 2008 approved a proposal to authorise the Board of Directors to decide to buy back not more than 51,000,000 own shares. The authorisation is valid for 18 months from the date of the decision. As of the end of June, this authorisation has not been exercised. On the basis of the decisions of the Annual General Meeting of 27 March 2007, the Board has the authority to decide 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 buyback authorisation may not exceed 1/10 of the total number of shares of the company. In addition, the Board has the authority to decide to issue shares and special rights entitling the holder to shares of the company. The number of new shares to be issued, including shares to be obtained under special rights, shall be no more than 250,000,000. Of that, the maximum number that may 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. Furthermore, the Board is authorised to decide on the disposal of own shares. These authorisations of the 2007 Annual General Meeting will remain valid for no more than three years from the date of the decision. To date this authorisation has not been exercised. In the second quarter of 2008, 7,375,768 shares were subscribed for through exercising of outstanding share options. The number of shares entered in the Trade Register as of 30 June 2008 was 519,968,088. Through the issuance authorisation and share options, the number of shares may increase to a maximum of 793,966,088. 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 US 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 US and Canadian investigations are closed, and the European Commission has tentatively closed its investigation of the European fine paper, newsprint, magazine paper, label paper, and selfadhesive labelstock markets. UPM has been named as a defendant in multiple class-action lawsuits against labelstock and magazine paper manufacturers in the United States. UPM has agreed to settle the class-action lawsuits raised by direct purchasers of labelstock and magazine paper. Certain class-action lawsuits filed by indirect purchasers of labelstock and magazine paper continue to be pending. The remaining litigation matters may last several years. No material provisions have been made in relation to these investigations. Events after the balance sheet date The Group's management is not aware of any significant events occurring after 30 June 2008. Risk factors If implemented, the third increase in the export duty on Russian wood from the beginning of 2009 will make imports of roundwood uneconomical. There is a high risk that these imports cannot be fully replaced in a financially sound manner. The uncertainty about the final outcome will reduce imports from Russia during the latter part of this year. This could result in reduction of production at some of the Finnish mills in the second half of 2008. Outlook for the second half of 2008 Paper demand in Europe is expected to be about the same or slightly lower than last year. In North America, weakening demand trend is expected to continue. Growth in demand will continue in China. UPM's paper deliveries for the second half of the year are expected to be slightly above the first half of the year. For the second half of the year the Group's average paper price in euro is expected to be slightly higher than that of the first half of 2008. This is mainly due to price increases achieved in magazine papers. Market demand for self-adhesive labelstock is forecast to grow in Europe and Asia, although at a lower pace, but in North America no growth is expected. Self-adhesive labelstock prices in local currencies are expected to increase from the first half in all main markets. In wood products, market balance is expected to soften somewhat both in birch and spruce plywood. In sawn timber, weak market continues especially in whitewood. These combined with high cost of wood raw material, profitability will decline further. Wood fibre costs are expected to stay at current high level. However, due to cost savings from the ongoing profitability actions, an increase in the company's overall costs for the full year is still expected to be about 2%. Demand outlook of UPM's businesses for the second half of the year has weakened since the beginning of the year and UPM's operative profitability for the full year 2008 is estimated to be lower than that of last year. Divisional reviews Magazine Papers Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 08 07 07 07 07 08 07 07 Sales, EUR million 767 781 811 847 798 793 1,548 1,591 3,249 EBITDA, EUR million 125 120 98 116 114 113 245 227 441 1) % of sales 16.3 15.4 12.1 13.7 14.3 14.2 15.8 14.3 13.6 Depreciation, -77 -76 -83 -82 -443 -86 -153 -529 -694 amortisation and impairment charges, EUR million Operating profit, 49 44 -62 34 -339 27 93 -312 -340 EUR million % of sales 6.4 5.6 -7.6 4.0 -42.5 3.4 6.0 -19.6 -10.5 Special items, EUR 1 - -77 - -371 - 1 -371 -448 million 2) Operating profit 48 44 15 34 32 27 92 59 108 excl. special items, EUR million % of sales 6.3 5.6 1.8 4.0 4.0 3.4 5.9 3.7 3.3 Deliveries, 1,000t 1,107 1,136 1,238 1,266 1,189 1,155 2,243 2,344 4,848 1) EBITDA is operating profit before depreciation, amortisation and impairment charges and excluding special items. 2) Special items for the second quarter of 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. For the fourth quarter, special items include personnel expenses of EUR 44 million and other costs of EUR 36 million related to the Miramichi paper mill, and an income of EUR 3 million related to other restructuring measures. Q2 of 2008 compared with Q2 of 2007 Operating profit, excluding special items, for Magazine Papers improved to EUR 48 million (32 million). Sales were EUR 767 million (798 million). Paper deliveries decreased by 7% to 1,107,000 tonnes (1,189,000). The average price for all magazine paper deliveries increased by about 6% in local currencies, and when translated into euros by about 2%. January-June 2008 compared with January-June 2007 Operating profit, excluding special items, for Magazine Papers was EUR 92 million (59 million). Sales were EUR 1,548 million (1,591 million). Paper deliveries declined by 4% to 2,243,000 tonnes (2,344,000). The production of the Miramichi paper mill was stopped in August 2007. Profitability of the division improved. Lower fixed costs balanced the rise in variable costs, mainly those of fibre and energy. Magazine paper prices in local currencies increased in all main markets. Price increases more than compensated for adverse currency effects, with the exception of GBP. The average price for all magazine paper deliveries translated into euros, increased slightly from last year's level. Market review In the first half of the year, magazine paper demand in Europe continued to be good. Demand grew by about 3% for coated magazine paper, and by about 7% for uncoated magazine paper. North American demand for magazine papers weakened clearly toward the end of the period. As a result, in the first half of the year, coated magazine paper demand declined by about 4%, whilst uncoated magazine paper demand is estimated to have increased by 2%. The average market price for magazine papers in Europe increased by about 3% in local currencies from last year's level. In North America, USD prices increased by about 20%. Market prices increased across all markets, in local currencies. Newsprint Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 08 07 07 07 07 08 07 07 Sales, EUR million 332 332 378 365 379 348 664 727 1,470 EBITDA, EUR million 57 60 79 91 100 92 117 192 362 1) % of sales 17.2 18.1 20.9 24.9 26.4 26.4 17.6 26.4 24.6 Depreciation, -46 -46 -48 -47 -47 -48 -92 -95 -190 amortisation and impairment charges, EUR million Operating profit, 11 15 36 44 53 44 26 97 177 EUR million % of sales 3.3 4.5 9.5 12.1 14.0 12.6 3.9 13.3 12.0 Special items, EUR - 1 5 - - - 1 - 5 million 2) Operating profit 11 14 31 44 53 44 25 97 172 excl. special items, EUR million % of sales 3.3 4.2 8.2 12.1 14.0 12.6 3.8 13.3 11.7 Deliveries, 1,000t 642 636 702 667 683 630 1,278 1,313 2,682 1) EBITDA is operating profit before depreciation, amortisation and impairment charges and excluding special items. 2) Special items for the fourth quarter of 2007 include an income of EUR 5 million related to restructuring measures. Q2 of 2008 compared with Q2 of 2007 Operating profit, excluding special items, for Newsprint decreased to EUR 11 million (53 million). Sales were EUR 332 million (379 million). Paper deliveries decreased by 6% to 642,000 tonnes (683,000). The average price for all newsprint deliveries when translated into euros was about 6% lower than in the corresponding period in 2007. January-June 2008 compared with January-June 2007 Operating profit, excluding special items, for Newsprint decreased to EUR 25 million (97 million). Sales were EUR 664 million (727 million). Paper deliveries decreased by 3% to 1,278,000 tonnes (1,313,000). In February, Kajaani PM4 (annual capacity of 250,000 tonnes) was temporarily closed for 10 months. The most important reasons for the weakened profitability were lower paper prices in Europe and the strength of the euro, especially against GBP. The average price for all newsprint deliveries when translated into euros was about 6% lower than in the corresponding period in 2007. Also, fibre and energy costs increased from last year, but they were partly compensated for by lower fixed costs. Market review In Europe, demand for standard and improved newsprint decreased by about 4% from the first half of last year. The average market price for standard newsprint in Europe was about 6% lower than last year. In North America, average prices of newsprint increased, but demand continued to decrease. In the other markets, especially in Asia, prices increased clearly, as lower exports from China tightened the market balance. Fine and Speciality Papers Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 08 07 07 07 07 08 07 07 Sales, EUR million 686 726 718 694 686 699 1,412 1,385 2,797 EBITDA, EUR million 71 84 66 82 92 85 155 177 325 1) % of sales 10.3 11.6 9.2 11.8 13.4 12.2 11.0 12.8 11.6 Depreciation, -53 -53 -54 -53 -53 -53 -106 -106 -213 amortisation and impairment charges, EUR million Operating profit, 18 31 12 29 39 32 49 71 112 EUR million % of sales 2.6 4.3 1.7 4.2 5.7 4.6 3.5 5.1 4.0 Special items, EUR - - - - - - - - - million Operating profit 18 31 12 29 39 32 49 71 112 excl. special items, EUR million % of sales 2.6 4.3 1.7 4.2 5.7 4.6 3.5 5.1 4.0 Deliveries, 1,000t 923 981 977 954 960 968 1,904 1,928 3,859 1) EBITDA is operating profit before depreciation, amortisation and impairment charges and excluding special items. Q2 of 2008 compared with Q2 of 2007 Operating profit, excluding special items, for Fine and Speciality Papers was EUR 18 million (39 million). Sales were EUR 686 million (686 million). Paper deliveries totalled 923,000 tonnes (960,000). The Kymi paper mill was stopped for six days in May for the final integration of the new chemical recovery island with the process. Furthermore, the division curtailed production at the Nordland paper mill. The average price for all fine and speciality paper deliveries when translated into euros was about 3% higher than a year ago. January-June 2008 compared with January-June 2007 Operating profit, excluding special items, for Fine and Speciality Papers decreased from EUR 71 million to EUR 49 million. Sales increased from EUR 1,385 million to 1,412 million. Paper deliveries came to 1,904,000 tonnes (1,928,000). The profitability of the division weakened from last year's level. Wood and pulp costs were markedly higher than last year. These were partly offset by improved efficiency and about 2% higher average paper prices. Market review In Europe, demand for coated fine paper weakened toward the end of the period. As a result, demand during the first six months decreased by about 2% from last year's level. Demand for uncoated fine paper decreased by about 3%. In Europe, the average market price for coated fine paper was about 5% lower than last year, and the average price for uncoated fine paper was approximately at last year's level. In Asia, demand and prices for fine paper showed a clear increase from last year. Good demand for label and packaging papers continued. Label Materials Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 08 07 07 07 07 08 07 07 Sales, EUR million 252 249 249 252 260 261 501 521 1,022 EBITDA, EUR million 14 9 15 18 21 26 23 47 80 1) % of sales 5.6 3.6 6.0 7.1 8.1 10.0 4.6 9.0 7.8 Depreciation, -8 -9 -9 -8 -8 -8 -17 -16 -33 amortisation and impairment charges, EUR million Operating profit, 6 0 10 10 13 18 6 31 51 EUR million % of sales 2.4 0.0 4.0 4.0 5.0 6.9 1.2 6.0 5.0 Special items, EUR - - 4 - - - - - 4 million 2) Operating profit 6 0 6 10 13 18 6 31 47 excl. special items, EUR million % of sales 2.4 0.0 2.4 4.0 5.0 6.9 1.2 6.0 4.6 1) EBITDA is operating profit before depreciation, amortisation and impairment charges and excluding special items. 2) Special items in the fourth quarter of 2007 include an income of EUR 4 million related to restructuring measures. Q2 of 2008 compared with Q2 of 2007 Operating profit, excluding special items, for Label Materials was EUR 6 million (13 million). Sales decreased to EUR 252 million (260 million). Delivery volumes grew in all main markets from the same period last year. January-June 2008 compared with January-June 2007 Operating profit, excluding special items, for Label Materials was EUR 6 million (31 million). Sales decreased by 4% to EUR 501 million (521 million), because of the strengthened euro, lower prices, and changes in market mix. Labelstock delivery volumes grew in all main markets, and the strong growth in RFID delivery volumes continued. The profitability of the division weakened. The main reasons were the strengthened euro and lower prices in invoicing currencies, together with higher raw material costs. The price increases announced in the first quarter of 2008 improved average prices during the second quarter of 2008. The division has launched an internal profitability improvement programme. Market review Because of the weak US economy and consumer demand, label material demand in North America is estimated to have decreased slightly during the first six months of the year. In Europe, demand is estimated to have continued to grow, although at a slower pace than last year. In Asia, the solid growth in demand continued, even though the growth rate was slightly lower in some areas than it was last year. Wood Products Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 08 07 07 07 07 08 07 07 Sales, EUR million 293 298 297 262 326 314 591 640 1,199 EBITDA, EUR million 13 19 26 8 51 42 32 93 127 1) % of sales 4.4 6.4 8.8 3.1 15.6 13.4 5.4 14.5 10.6 Depreciation, -10 -11 -11 -10 -11 -10 -21 -21 -42 amortisation and impairment charges, EUR million Operating profit, 6 8 21 -2 41 32 14 73 92 EUR million % of sales 2.0 2.7 7.1 -0.8 12.6 10.2 2.4 11.4 7.7 Special items, EUR 3 - 6 - - - 3 - 6 million 2) Operating profit 3 8 15 -2 41 32 11 73 86 excl. special items, EUR million % of sales 1.0 2.7 5.1 -0.8 12.6 10.2 1.9 11.4 7.2 Deliveries, plywood 236 241 239 204 247 255 477 502 945 1,000 m3 Deliveries, sawn 601 560 520 480 637 587 1,161 1,224 2,224 timber 1,000 m3 1) EBITDA is operating profit before depreciation, amortisation and impairment charges and excluding special items. 2) Special items in the second quarter of 2008 include reversals of provisions related to the Kuopio plywood mill disposed in June. In the fourth quarter of 2007, special items include a gain of EUR 6 million on sale of estate assets. Q2 of 2008 compared with Q2 of 2007 Operating profit, excluding special items, for Wood Products decreased from EUR 41 million to EUR 3 million. Sales decreased by 10% to EUR 293 million (326 million). Plywood deliveries totalled 236,000 cubic metres (247,000) and sawn timber deliveries 601,000 cubic metres (637,000). Luumäki operations were closed down in June. On 12 June, UPM announced that it will start negotiations with employees on the possible closure of the Leivonmäki sawmill in Finland. January-June 2008 compared with January-June 2007 Operating profit, excluding special items, for Wood Products decreased from EUR 73 million to EUR 11 million. Sales decreased by 8% to EUR 591 million (640 million). Plywood deliveries totalled 477,000 cubic metres (502,000) and sawn timber deliveries 1,161,000 cubic metres (1,224,000). The profitability of the division weakened materially, as sawn timber prices declined and wood costs remained at a high level. Sawn timber production was curtailed during the period under review. The good profitability of plywood continued. The supply of logs improved slightly toward the end of the period. Market review In the first half of the year, plywood demand remained stable in Europe, although it showed some weakening toward the end of the period. Plywood market prices were higher than a year ago. The market balance for sawn timber weakened substantially. Demand for both redwood and whitewood sawn timber weakened, while supply in Europe increased, leading to significant price reductions. Other Operations Em Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 08 07 07 07 07 08 07 07 Sales 1) 194 168 188 173 214 234 362 448 809 EBITDA 2) 33 45 67 51 32 60 78 92 210 Depreciation, -5 -4 -31 -6 -5 -10 -9 -15 -52 amortisation and impairment charges Operating profit Forestry 31 37 61 43 34 28 68 62 166 Energy Department, 32 38 42 23 19 28 70 47 112 Finland Other and -17 -2 20 - 59 -9 -19 50 70 eliminations Operating profit, 46 73 123 66 112 47 119 159 348 total Special items 3) -2 4 10 - 71 - 2 71 81 Operating profit, 48 69 113 66 41 47 117 88 267 excluding 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) Special items for the first quarter of 2008 include adjustment to sales of disposals in 2007. Special items for the second quarter of 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. In the fourth quarter, special items include a capital gain of EUR 58 million on the sale of port operators Rauma Stevedoring and Botnia Shipping, a compensation charge of EUR 12 million related to class-action lawsuits in the US, impairment charges of EUR 31 million related mainly to Miramichi's forestry and sawmilling operations, and other restructuring costs of EUR 5 million. Q2 of 2008 compared with Q2 of 2007 Excluding special items, operating profit for Other Operations was EUR 48 million (41 million). Sales came to EUR 194 million (214 million). The operating profit of Forestry was EUR 31 million (34 million). The increase in the fair value of biological assets (growing trees) was EUR 51 million (49 million). The cost of wood raw material harvested from the Group's forests was EUR 31 million (35 million). The net effect total was EUR 20 million (14 million). The operating profit of the Energy Department in Finland was EUR 32 million (19 million). January-June 2008 compared with January-June 2007 Excluding special items, operating profit for Other Operations was EUR 117 million (88 million). Sales were EUR 362 million (448 million). The operating profit of Forestry was EUR 68 million (62 million). The increase in the fair value of biological assets net of wood harvested was EUR 48 million (11 million), including the increase in the value of growing trees of EUR 92 million (72 million) and the cost of wood raw material harvested from own forests of EUR 44 million (61 million). The operating profit of the Energy Department in Finland was EUR 70 million (47 million). Hydropower availability was very good, impacting the average cost of energy generation favourably. The price of electricity at Nord Pool was significantly higher than in the corresponding period of last year. In Finland, UPM was a net seller of electricity. Associated companies and joint ventures EUR million Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 08 07 07 07 07 08 07 07 Share of result after tax Oy Metsä-Botnia Ab 20 26 6 19 12 21 46 33 58 Pohjolan Voima Oy -2 -5 -4 -5 -5 - -7 -5 -14 Other 3 1 - - -1 - 4 -1 -1 Total 21 22 2 14 6 21 43 27 43 Deliveries Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ 08 08 07 07 07 07 08 07 Paper deliveries Magazine papers, 1,107 1,136 1,238 1,266 1,189 1,155 2,243 2,344 1,000 t Newsprint, 1,000 t 642 636 702 667 683 630 1,278 1,313 Fine and speciality 923 981 977 954 960 968 1,904 1,928 papers, 1,000 t Paper deliveries 2,672 2,753 2,917 2,887 2,832 2,753 5,425 5,585 total Wood products deliveries Plywood, 1,000 m3 236 241 239 204 247 255 477 502 Sawn timber, 1,000 m3 628 573 537 505 666 617 1,201 1,283 Q1-Q4/ 07 Paper deliveries Magazine papers, 4,848 1,000 t Newsprint, 1,000 t 2,682 Fine and speciality 3,859 papers, 1,000 t Paper deliveries 11,389 total Wood products deliveries Plywood, 1,000 m3 945 Sawn timber, 1,000 m3 2,325 Helsinki, 24 July 2008 UPM-Kymmene Corporation Board of Directors This Interim Report is unaudited. Financial information Consolidated income statement EUR million Q2/ Q2/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 07 08 07 07 Sales 2,378 2,537 4,788 5,056 10,035 Other operating 11 80 51 98 200 income Costs and expenses -2,074 -2,145 -4,182 -4,264 -8,650 Change in fair value 20 14 48 11 79 of biological assets and wood harvested Share of results of 21 6 43 27 43 associated companies and joint ventures Depreciation, -199 -567 -398 -782 -1,224 amortisation and impairment charges Operating profit 157 -75 350 146 483 Gains on 2 - 2 2 2 available-for-sale investments, net Exchange rate and -1 8 -11 11 -2 fair value gains and losses Interest and other -43 -54 -92 -103 -191 finance costs, net Profit before tax 115 -121 249 56 292 Income taxes -25 -77 -56 -123 -211 Profit for the period 90 -198 193 -67 81 Attributable to: Equity holders of 92 -198 194 -67 85 the parent company Minority interest -2 - -1 - -4 90 -198 193 -67 81 Earnings per share for profit attributable to the equity holders of the parent company Basic earnings per 0.18 -0.38 0.38 -0.13 0.16 share, EUR Diluted earnings 0.18 -0.38 0.38 -0.13 0.16 per share, EUR Condensed consolidated balance sheet EUR million 30.06.2008 30.06.2007 31.12.2007 ASSETS Non-current assets Goodwill 1,163 1,163 1,163 Other intangible assets 425 419 392 Property, plant and equipment 6,007 6,375 6,179 Biological assets 1,138 1,032 1,095 Investments in associated 1,210 1,185 1,193 companies and joint ventures Deferred tax assets 247 339 284 Other non-current assets 398 252 333 10,588 10,765 10,639 Current assets Inventories 1,438 1,294 1,342 Trade and other receivables 1,806 1,771 1,735 Cash and cash equivalents 103 104 237 3,347 3,169 3,314 Total assets 13,935 13,934 13,953 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent Share capital 890 890 890 Share premium reserve - 825 - Fair value and other reserves -76 325 35 Reserve for invested 1,145 - 1,067 non-restricted equity Retained earnings 4,615 4,893 4,778 6,574 6,933 6,770 Minority interest 11 16 13 Total equity 6,585 6,949 6,783 Non-current liabilities Deferred tax liabilities 743 762 745 Non-current interest-bearing 3,971 3,053 3,384 liabilities Other non-current liabilities 584 613 624 5,298 4,428 4,753 Current liabilities Current interest-bearing liabilities 704 1,118 931 Trade and other payables 1,348 1,439 1,486 2,052 2,557 2,417 Total liabilities 7,350 6,985 7,170 Total equity and liabilities 13,935 13,934 13,953 Consolidated statement of changes in equity Attributable to equity holders of the parent EUR million Share Share Transl- Fair Reserve capital premium ation value and for reserve differ- other invested ences reserves non- restricted equity Balance at 1 890 826 -89 278 - January 2007 Translation differences - - 12 - - Other items - - - -1 - Net investment hedge, - - - - - net of tax Cash flow hedges fair value - - - 17 - gains/losses, net of tax transfers from - - - -16 - equity, net of tax Available-for-sale investments transfers to income - - - -2 - statement, net of tax Profit for the period - - - - - Total recognised income - - 12 -2 - and expense for the period Share options exercised - - - 104 - Share-based compensation, - - - 6 - net of tax Dividend paid - - - - - Transfers and other - -1 - 16 - Business combinations - - - - - Total of other changes - -1 - 126 - in equity Balance at 30 June 2007 890 825 -77 402 - Balance at 1 890 - -158 193 1,067 January 2008 Translation differences - - -117 - - Other items - - - -1 - Net investment hedge, - - 26 - - net of tax Cash flow hedges fair value - - - 40 - gains/losses, net of tax transfers from equity, - - - -40 - net of tax Available-for-sale investments transfers to income - - - - - statement, net of tax Profit for the period - - - - - Total recognised income - - -91 -1 - and expense for the period Share options exercised - - - - 78 Share-based - - - -19 - compensation, net of tax Dividend paid - - - - - Business combinations - - - - - Total of other changes - - - -19 78 in equity Balance at 30 June 2008 890 - -249 173 1,145 Attributable to equity holders of the parent EUR million Retained Total Minority Total earnings interest equity Balance at 1 5,366 7,271 18 7,289 January 2007 Translation differences - 12 - 12 Other items 2 1 - 1 Net investment hedge, - - - - net of tax Cash flow hedges fair value - 17 - 17 gains/losses, net of tax transfers from equity, - -16 - -16 net of tax Available-for-sale investments transfers to income - -2 - -2 statement, net of tax Profit for the period -67 -67 - -67 Total recognised income -65 -55 - -55 and expense for the period Share options exercised - 104 - 104 Share-based compensation, - 6 - 6 net of tax Dividend paid -392 -392 - -392 Transfers and other -16 -1 -2 -3 Business combinations - - - - Total of other changes -408 -283 -2 -285 in equity Balance at 30 June 2007 4,893 6,933 16 6,949 Balance at 1 4,778 6,770 13 6,783 January 2008 Translation differences - -117 - -117 Other items 6 5 - 5 Net investment hedge, - 26 - 26 net of taxCash flow hedges fair value - 40 - 40 gains/losses, net of tax transfers from equity, - -40 - -40 net of tax Available-for-sale investments transfers to income - - - - statement, net of tax Profit for the period 194 194 -1 193 Total recognised income 200 108 -1 107 and expense for the period Share options exercised - 78 - 78 Share-based compensation, 21 2 - 2 net of tax Dividend paid -384 -384 - -384 Business combinations - - -1 -1 Total of other changes -363 -304 -1 -305 in equity Balance at 30 June 2008 4,615 6,574 11 6,585 Condensed consolidated cash flow statement EUR million Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 07 07 Cash flow from operating activities Profit for the period 193 -67 81 Adjustments, total 351 864 1,390 Change in working -245 -207 -204 capital Cash generated from 299 590 1,267 operations Finance costs, net -118 -105 -236 Income taxes paid -85 -93 -164 Net cash from 96 392 867 operating activities Cash flow from investing activities Acquisitions and -6 -11 -25 share purchases Purchases of -310 -359 -673 intangible and tangible assets Asset sales and 17 182 273 other investing cash flow Net cash used in -299 -188 -425 investing activities Cash flow from financing activities Change in loans and 375 -11 152 other financial items Share options exercised 78 104 104 Dividends paid -384 -392 -392 Purchase of own shares - - -266 Net cash used in 69 -299 -402 financing activities Change in cash and -134 -95 40 cash equivalents Cash and cash 237 199 199 equivalents at beginning of period Foreign exchange - - -2 effect on cash Change in cash and -134 -95 40 cash equivalents Cash and cash 103 104 237 equivalents at end of period Operating cash flow 0.19 0.75 1.66 per share, EUR Quarterly information EUR million Q2/ Q1/ Q4/ Q3/ Q2/ 08 08 07 07 07 Sales by segment Magazine Papers 767 781 811 847 798 Newsprint 332 332 378 365 379 Fine and Speciality Papers 686 726 718 694 686 Label Materials 252 249 249 252 260 Wood Products 293 298 297 262 326 Other Operations 194 168 188 173 214 Internal sales -146 -144 -129 -126 -126 Sales, total 2,378 2,410 2,512 2,467 2,537 Operating profit by segment Magazine Papers 49 44 -62 34 -339 Newsprint 11 15 36 44 53 Fine and Speciality Papers 18 31 12 29 39 Label Materials 6 - 10 10 13 Wood Products 6 8 21 -2 41 Other Operations 46 73 123 66 112 Share of results of 21 22 2 14 6 associated companies and joint ventures Operating profit 157 193 142 195 -75 (loss), total % of sales 6.6 8.0 5.7 7.9 -3.0 Gains on 2 - - - - available-for-sale investments, net Exchange rate and fair -1 -10 -4 -9 8 value gains and losses Interest and other -43 -49 -46 -42 -54 finance costs, net Profit (loss) before tax 115 134 92 144 -121 Income taxes -25 -31 -63 -25 -77 Profit (loss) for 90 103 29 119 -198 the period Basic earnings per 0.18 0.20 0.06 0.23 -0.38 share, EUR Diluted earnings 0.18 0.20 0.06 0.23 -0.38 per share, EUR Average number of 517,622 512,581 514,085 527,012 527,111 shares, basic (1,000) Average number of 516,791 513,412 515,322 529,530 530,980 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 1 - -77 - -371 Newsprint - 1 5 - - Fine and Speciality Papers - - - - - Label Materials - - 4 - - Wood Products 3 - 6 - - Other Operations -2 4 10 - 71 Share of results of - - - - - associated companies and joint ventures Special items in 2 5 -52 - -300 operating profit, total Special items reported - - - - - after operating profit Special items reported in - - -39 - -32 taxes Special items, total 2 5 -91 - -332 Operating profit, 155 188 194 195 225 excl. special items % of sales 6.5 7.8 7.7 7.9 8.9 Profit before tax, 113 129 144 144 179 excl. special items % of sales 4.8 5.4 5.7 5.8 7.1 Earnings per share, 0.17 0.19 0.24 0.23 0.28 excl. special items, EUR Return on equity, 5.4 5.9 7.1 6.9 8.5 excl. special items, % Return on capital 5.7 6.5 6.9 6.8 8.3 employed, excl. special items, % EUR million Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/ 07 08 07 07 Sales by segment Magazine Papers 793 1,548 1,591 3,249 Newsprint 348 664 727 1,470 Fine and Speciality 699 1,412 1,385 2,797 Papers Label Materials 261 501 521 1,022 Wood Products 314 591 640 1,199 Other Operations 234 362 448 809 Internal sales -130 -290 -256 -511 Sales, total 2,519 4,788 5,056 10,035 Operating profit by segment Magazine Papers 27 93 -312 -340 Newsprint 44 26 97 177 Fine and Speciality 32 49 71 112 Papers Label Materials 18 6 31 51 Wood Products 32 14 73 92 Other Operations 47 119 159 348 Share of results of 21 43 27 43 associated companies and joint ventures Operating profit 221 350 146 483 (loss), total % of sales 8.8 7.3 2.9 4.8 Gains on 2 2 2 2 available-for-sale investments, net Exchange rate and fair 3 -11 11 -2 value gains and losses Interest and other -49 -92 -103 -191 finance costs, net Profit (loss) before tax 177 249 56 292 Income taxes -46 -56 -123 -211 Profit (loss) for 131 193 -67 81 the period Basic earnings per 0.25 0.38 -0.13 0.16 share, EUR Diluted earnings 0.25 0.38 -0.13 0.16 per share, EUR Average number of 523,261 515,102 525,186 522,867 shares, basic (1,000) Average number of 527,086 515,102 529,033 525,729 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 - 1 -371 -448 Newsprint - 1 - 5 Fine and Speciality - - - - Papers Label Materials - - - 4 Wood Products - 3 - 6 Other Operations - 2 71 81 Share of results of - - - - associated companies and joint ventures Special items in - 7 -300 -352 operating profit, total Special items reported - - - - after operating profit Special items reported - - -32 -71 in taxes Special items, total - 7 -332 -423 Operating profit, 221 343 446 835 excl. special items % of sales 8.8 7.2 8.8 8.3 Profit before tax, 177 242 356 644 excl. special items % of sales 7.0 5.1 7.0 6.4 Earnings per share, 0.25 0.36 0.53 1.00 excl. special items, EUR Return on equity, 7.3 5.6 7.9 7.4 excl. special items, % Return on capital 7.9 6.0 8.1 7.4 employed, excl. special items, % Changes in property, plant and equipment EUR million Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 07 07 Book value at 6,179 6,500 6,500 beginning of period Capital expenditure 262 325 644 Decreases -6 -46 -96 Depreciation -365 -381 -752 Impairment charges - -22 -42 Impairment reversal - 11 12 Translation -63 -13 -87 difference and other changes Book value at end 6,007 6,374 6,179 of period Commitments and contingencies EUR million 30.06.2008 30.06.2007 31.12.2007 Own commitments Mortgages 89 94 90 On behalf of associated companies and joint ventures Guarantees for loans 10 11 10 On behalf of others Other guarantees 3 5 3 Other own commitments Leasing commitments 23 21 21 for the next 12 months Leasing commitments 88 90 99 for subsequent periods Other commitments 65 77 70 Capital commitments EUR million Completion Total By 31.12. Q1-Q2/ After cost 2007 2008 30.06.08 Pulp mill rebuild, June 2008 345 226 61 58 Kymi New Poland mill, Nov. 2008 90 23 38 29 UPM Raflatac New bioboiler, Sep. 2009 75 11 20 44 Caledonian Rebuild of Oct. 2010 30 - - 30 debarking plant, Wisaforest New wood-plastic Dec. 2008 12 - 2 10 composite mill, Germany Notional amounts of derivative financial instruments EUR million 30.06.2008 30.06.2007 31.12.2007 Currency derivatives Forward contracts 6,621 3,557 4,369 Options, bought 40 37 50 Options, written 45 37 60 Swaps 502 557 529 Interest rate derivatives Forward contracts 3,511 2,646 3,642 Swaps 2,130 2,496 2,383 Other derivatives Forward contracts 28 14 12 Swaps 5 8 3 Related party (associated companies and joint ventures) transactions and balances EUR million Q1-Q2/ Q1-Q2/ Q1-Q4/ 08 07 07 Sales to associated 67 41 130 companies Purchases from 263 215 500 associated companies Trade and other 29 19 29 receivables at end of period Trade and other 22 33 42 payables at end of period Key exchange rates for the euro at end of period 30.06.2008 31.03.2008 31.12.2007 30.09.2007 30.06.2007 31.03.2007 USD 1.5764 1.5812 1.4721 1.4179 1.3505 1.3318 CAD 1.5942 1.6226 1.4449 1.4122 1.4245 1.5366 JPY 166.44 157.37 164.93 163.55 166.63 157.32 GBP 0.7923 0.7958 0.7334 0.6968 0.6740 0.6798 SEK 9.4703 9.3970 9.4415 9.2147 9.2525 9.3462 Basis of preparation This unaudited financial report has been prepared in accordance with the accounting policies set forth in International Accounting Standard 34 on Interim Financial Reporting and in the Group's Consolidated Financial Statements for 2007. Income tax expense is recognised based on the best estimate of the weighted average annual income tax rate expected for the full financial year. 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 / Equity total + 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 68-69 of the company's annual report 2007. UPM-Kymmene Corporation Pirkko Harrela Executive Vice President, Corporate communications DISTRIBUTION OMX Nordic Exchange Main media www.upm-kymmene.com UPM, Corporate Communications Media Desk, tel. +358 40 588 3284 communications@upm-kymmene.com |
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