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2009-02-05 08:30:00 CET 2009-02-05 08:30:04 CET REGULATED INFORMATION UPM-Kymmene - Financial Statement ReleaseUPM's Financial Review 2008UPM-Kymmene Corporation Annual Financial Statement 5 February 2009 at 09:30 Earnings per share for 2008 were EUR -0.35 (0.16), excluding special items EUR 0.42 (1.00). Operating profit for the year was EUR 24 million (483 million), excluding special items EUR 513 million (835 million). Operating loss for the fourth quarter was EUR 286 million (profit of EUR 142 million), excluding special items operating loss was EUR 46 million (profit of EUR 194 million). Operating cash flow was EUR 628 million (867 million). High cost of wood and energy lowered profitability. Key figures Q4/ Q4/ Q1-Q4/ Q1-Q4/ 2008 2007 2008 2007 Sales, EUR million 2,315 2,512 9,461 10,035 EBITDA, EUR million 1) 178 351 1,206 1,546 % of sales 7.7 14.0 12.7 15.4 Operating profit -286 142 24 483 (loss), EUR million excluding special -46 194 513 835 items, EUR million % of sales -2.0 7.7 5.4 8.3 Profit (loss) -360 92 -201 292 before tax, EUR million excluding special -120 144 282 644 items, EUR million Net profit (loss) -286 29 -180 81 for the period, EUR million Earnings per share, -0.56 0.06 -0.35 0.16 EUR excluding special -0.19 0.24 0.42 1.00 items, EUR Diluted earnings -0.56 0.06 -0.35 0.16 per share, EUR Return on equity, % neg. 1.7 neg. 1.2 excluding special neg. 7.1 3.4 7.4 items, % Return on capital neg. 5.1 0.2 4.3 employed, % excluding special neg. 6.9 4.6 7.4 items, % Operating cash flow 0.69 0.57 1.21 1.66 per share, EUR Gearing ratio at 71 59 71 59 end of period, % Shareholders' 11.74 13.21 11.74 13.21 equity per share at end of period, EUR Net interest-bearing 4,321 3,973 4,321 3,973 liabilities at end of period, EUR million Capital employed at 11,193 11,098 11,193 11,098 end of period, EUR million Capital expenditure, 113 173 551 708 expenditure, EUR million Personnel at end of 24,983 26,352 24,983 26,352 period 1) EBITDA is operating profit before depreciation, amortisation and impairment charges and excluding the change in value of biological assets and the share of results of associated companies and joint ventures and special items. The market in 2008 The two halves of 2008 were very different in nature. The year 2008 started with expectations of slower growth globally despite increasing commodity prices and rising inflation. The picture changed in late summer with the global financial crisis and downward revised economic forecasts. Consumer confidence in North America and Europe dropped dramatically. Volatility characterised currency markets throughout the year. The dollar increased in value against the euro in the early part of the year, then decreased but rebounded again at the very end of the year. The UK pound and Swedish krona devalued against the euro, particularly in the last couple of months of the year. Prices for commodities and raw materials kept rising in the early part of the year. However, rapidly deteriorating demand has depressed prices since late summer. In early December, crude oil prices plunged to less than a third from the record high level reached in July. Demand and prices for pulp have declined sharply since April due to lower paper and board demand. Wood raw material prices in Finland increased in the beginning of the year. Demand for wood raw material was still at a high level, but since early summer prices decreased due to lower demand. The threat of prohibitive export duties for wood raw material from Russia disturbed the wood markets in Finland during the year. Production costs for the forest industry increased considerably. Global advertising expenditure declined on an annual basis from the previous year, but with large differences between different regions. Print advertising declined in value, but held its place as the second largest major medium. In value terms, newspapers and magazines suffered, but direct mail continued to grow. As a consequence of rapid downturn in the economy and a decline in print advertising the demand for graphic papers in Europe and North America declined. In response to the weak market balance, significant paper capacity closures and production curtailments were made both in Europe and in North America during 2008. The global retail sector faced a significant pull back in consumer spending, slowing down the growth of the sector. This affected packaging needs for consumer goods as well as the demand for self-adhesive label materials and advertising in the retail sector. Housing markets deteriorated globally, taking a sharp downturn after the summer months and leading to a very rapid decrease in construction toward the end of the year. This influenced the markets for building materials, including those for wood based materials. New business structure In December, UPM adopted a new business structure. The company now consists of three Business Groups: Energy and pulp, Paper, and Engineered materials. The company now reports financial information for the following seven business areas: Energy, Pulp, Forest and timber, Paper, Label, Plywood and Other operations. The comparative figures have been revised to correspond with the new structure. Results Q4 of 2008 compared with Q4 of 2007 Sales for the fourth quarter of 2008 were EUR 2,315 million, 8% lower than the EUR 2,512 million for the fourth quarter of 2007. Sales decreased due to lower deliveries across all of UPM's businesses. The operating loss was EUR 286 million, 12.4% of sales (profit of EUR 142 million, 5.7% of sales). The operating loss excluding special items was EUR 46 million, 2.0% of sales (profit of EUR 194 million, 7.7% of sales). Operating loss includes charges net of EUR 240 million as special items. This includes restructuring charges of EUR 143 million related to the closure of the Kajaani paper mill, EUR 59 million related to the closure of the Tervasaari pulp mill, charges of EUR 28 million related to restructuring of UPM Raflatac's European operations, and other restructuring charges net of EUR 10 million. Profitability declined clearly from the same period last year. With the exception of Energy, all of UPM's business areas showed lower profitability. Lower deliveries in all of UPM's business areas and higher energy and wood costs had a negative impact on the results. Energy costs increased approximately EUR 50 million. Wood costs increased by almost EUR 60 million including a write down of EUR 36 million in wood inventories. Extensive production downtime was taken in paper, pulp and plywood mills and sawmills, which decreased cost efficiency of production during the quarter. Product inventories decreased significantly. In addition, the change in the fair value of biological assets net of wood harvested was EUR 2 million negative compared to EUR 47 million positive a year before. The average paper price in euro increased by approximately 6% from the same period last year. Timber and plywood prices declined, reducing profitability in the respective business areas. The average price for label materials increased in all markets. The share of the results of associated companies and joint ventures was EUR -16 million (2 million). The loss before tax was EUR 360 million (profit of EUR 92 million) and excluding special items EUR 120 million (profit of EUR 144 million). Interest and other finance costs net were EUR 60 million (46 million). Exchange rate and fair value gains and losses resulted in a loss of EUR 14 million (loss of EUR 4 million). Income taxes were EUR 74 million positive (63 million negative). The impact on taxes from special items was EUR 51 million positive (40 million negative). The loss for the fourth quarter was EUR 286 million (profit of EUR 29 million) and earnings per share were EUR -0.56 (0.06). Earnings per share excluding special items were EUR -0.19 (0.24). 2008 compared with 2007 Sales for 2008 were EUR 9,461 million, 6% lower than in 2007 (10,035 million). Sales decreased due to lower deliveries across all of UPM's businesses. The operating profit was EUR 24 million (483 million), 0.3% of sales (4.8%). The operating profit excluding special items was EUR 513 million, 5.4% of sales (EUR 835 million, 8.3% of sales). The operating profit includes charges net of EUR 489 million as special items (charges of EUR 352 million). In Pulp special items of EUR 59 million relate to the closure of the Tervasaari pulp mill in December. This includes impairment charges of EUR 51 million and other costs EUR 8 million. In Forest and timber special items of EUR 36 million include impairment charges of EUR 31 million related to the Finnish sawmilling operations recognised in September, and other restructuring costs of EUR 5 million. Special items in Paper amounted to EUR 379 million including a goodwill impairment charge of EUR 230 million recognised in September. In addition, impairment charges of EUR 101 million and other restructuring costs of EUR 42 million were booked related to the closure of the Kajaani paper mill in December. Other restructuring costs were, net of EUR 6 million. In Label special items of EUR 28 million recorded in December, relate to restructuring measures in Europe. The costs include impairment charges of EUR 7 million and other restructuring costs of EUR 21 million. Special items of EUR 3 million in Plywood relate to income on disposals. In Other operations special items include an adjustment of EUR 5 million to sales of disposals of 2007 and other restructuring income net of EUR 5 million. Restructuring costs have approximately EUR 70 million negative cash effect mainly for the year 2009. Profitability declined clearly from last year. With the exception of Energy, all of UPM's business areas showed lower profitability. The main reason for the lower profitability was higher wood costs. Wood costs were approximately EUR 220 million higher than last year, including a write down of EUR 36 million in wood inventory made in the fourth quarter. Energy costs increased approximately EUR 100 million. Fixed costs declined markedly. The net increase in cost level was above 2%. Towards the end of the year deliveries declined significantly from last year across all of UPM's businesses. In Paper, higher average paper prices offset the impact of lower paper deliveries. In the fourth quarter, UPM took extensive production downtime in paper, pulp and plywood mills and sawmills, which decreased cost efficiency of production during the quarter. UPM's paper inventories at the end of the year were approximately 200,000 tonnes lower than a year ago. The change in the fair value of biological assets net of wood harvested was EUR 50 million (79 million). The share of the results of associated companies and joint ventures was EUR 62 million (43 million). The loss before tax was EUR 201 million (profit of EUR 292 million) and excluding special items a profit of EUR 282 million (644 million). Interest and other finance costs were EUR 202 million (191 million) net. Exchange rate and fair value gains and losses resulted in a loss of EUR 25 million (loss of EUR 2 million). Income taxes were EUR 21 million positive (EUR 211 million negative). The impact on taxes from special items was EUR 86 million positive (EUR 87 million negative). The effective tax rate excluding the impact of special items was 23% (22%). The loss for the year was EUR 180 million (profit of EUR 81 million) and earnings per share were EUR -0.35 (0.16). Earnings per share excluding special items were EUR 0.42 (1.00). Operating cash flow per share was EUR 1.21 (1.66). Return on capital employed was 0.2% (4.3%) and excluding special items 4.6% (7.4%). Financing Cash flow from operating activities, before capital expenditure and financing, was EUR 628 million (867 million). The increase in net working capital amounted to EUR 132 million (204 million), which is attributable primarily to wood procurement operations. The cash flow from operations was also negatively affected by a one-time cash contribution for changing the UK pension plans from defined benefit to defined contribution, and settlement of the restructuring provisions related to the closure of the Miramichi paper mill in 2007. The gearing ratio as of 31 December was 71% (59% on 31 December 2007). Net interest-bearing liabilities at the end of the year came to EUR 4,321 million (3,973 million). The average maturity of interest-bearing liabilities at year end was 5.7 years (6.1 years). At the end of the year the ratings for UPM's rated bonds were BBB- by S&P, and Baa3 by Moody's under review for a possible downgrade. Personnel In 2008, UPM had an average of 26,017 employees (28,246). At the beginning of the year the number of employees was 26,352, and at the end of the year it was 24,983. The reduction by 1,369 persons is mostly attributable to the Profitability Programme. Capital expenditure In 2008, capital expenditure, excluding acquisitions and share purchases, was EUR 532 million, 5.6% of sales (EUR 683 million, 6.8% of sales). Including acquisitions and share purchases, capital expenditure was EUR 551 million, 5.8% of sales (EUR 708 million, 7.1%). Operational capital expenditure was EUR 235 million (268 million). In April, UPM signed a shareholders' agreement to form a 50/50 joint venture company with the Russian Sveza Group to build a forest industry facility in the Vologda region of Northwest Russia. The letter of intent was signed in December 2007. The planned industrial complex would include a modern pulp mill, a sawmill and an OSB building panels mill. The final investment decision is subject to satisfactory outcome of the final feasibility study and the necessary approvals from the relevant authorities. The new self-adhesive label materials factory in Dixon, Illinois, started operations in February. The total investment cost was USD 100 million. The rebuild of the recovery plant at the Kymi pulp mill was completed in June. The new plant improves the energy self-sufficiency and efficiency of the mill. In addition, CO2 and other emissions are reduced. The total cost of the project was EUR 360 million. The new self-adhesive label materials factory in Wroclaw, Poland, started operations in November. The total investment cost was EUR 94 million. UPM is building a new renewable energy power plant at the Caledonian mill in Irvine, Scotland. The total investment cost is estimated to be EUR 75 million. The new power plant is scheduled to start in the second quarter of 2009. In December, Teollisuuden Voima Oy informed UPM that the supplier of the nuclear power plant Olkiluoto 3 has filed a request for arbitration concerning the delay and related costs. UPM's associated company Pohjolan Voima Oy is with 58.12% a majority shareholder of Teollisuuden Voima Oy. Restructuring The Profitability Programme for 2006-2008 was completed. By the end of 2008, reduction of personnel was 4,300 and the achieved annual cost savings are approximately EUR 190 million compared with the cost level of 2006. In addition to the above programme, UPM has continued with new initiatives and actions to improve its profitability. In December 2008 UPM closed uncompetitive paper and pulp capacity in Finland, including the Kajaani paper mill (annual capacity 640,000 tonnes of newsprint, special newsprint and uncoated magazine papers) and the Tervasaari pulp mill (annual capacity 210,000 tonnes of pulp). The closures will affect around 700 employees. The Kajaani and Tervasaari closures are expected to have a positive EBITDA impact. In June, UPM closed down the Luumäki timber components and planing mill. In December, UPM closed down the Leivonmäki sawmill (annual capacity of 80,000 cubic metres of sawn timber). In September UPM announced a plan for measures to improve efficiency in all of the company's business groups and functions. A preliminary estimate of the number of employees affected by these measures is around 950. The streamlining of operations is expected to result in annual savings of about EUR 70 million in fixed costs. Negotiations with the employee representatives have begun and expected to be concluded during the first half of 2009. In November, UPM's Label business area announced plans to restructure its European operations. The plan includes reduction of coating capacity, closing down a number of self-adhesive labelstock production lines and reduction in slitting capacity in the UK, France, Germany, Hungary and Finland. The number of employees affected by this programme is estimated to be approximately 340. The final decisions will be taken after consultation and negotiation with the employees in the relevant countries. The planned actions will improve the cost competitiveness and profitability of UPM's Label business area. The aim is to reduce operating costs annually by about EUR 25 million, with no material impact on the sales. Shares In 2008, UPM shares worth, in total EUR 10,549 million (16,472 million) were traded on the NASDAQ OMX Helsinki stock exchange. The highest quotation was EUR 13.87 in January and the lowest EUR 8.15 in December. The company's ADSs are traded on the US over-the-counter (OTC) market under a Level 1 sponsored American Depositary Receipt programme. 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. 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 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. Furthermore, the Board is authorised to decide on the disposal of own shares. To date, this authorisation has not been used. These authorisations of the 2007 Annual General Meeting will remain valid for no more than three years from the date of the decision. The meeting 27 March 2007 also decided on granting share options in connection with the company's share-based incentive plans. In option programmes 2007A, 2007B and 2007C, the total number of share options is no more than 15,000,000, and they will entitle to subscribe for, in total, no more than 15,000,000 new shares of the company. Apart from the above, the Board of Directors has no current authorisation to issue shares, convertible bonds, or share options. In 2008, 7,400,768 shares were subscribed for through exercising of outstanding share options. The number of shares entered in the Trade Register on 31 December 2008 was 519,970,088. Through the issuance authorisation and share options, the number of shares may increase to a maximum of 790,970,088. At the end of the year the company held 15,944 of its own shares, 0.003% of the total number of shares, which have been granted under the Group's share reward scheme. These shares have been returned in connection with termination of service contracts. The company has received the following notifications from shareholders: Norges Bank on 24 October 2008 held 5.01% of the share capital and the voting rights. Franklin Resources, Inc. held 9.94% of the voting rights on 3 November 2008. Listing of UPM 2005H stock options on the NASDAQ OMX Helsinki stock exchange commenced on 1 October 2008. Company directors At the Annual General Meeting Mr Matti Alahuhta, President and CEO of KONE Corporation, and Mr Björn Wahlroos, President and CEO of Sampo plc, were elected to the Board of Directors as new members. In addition, Mr Michael C. Bottenheim, LLM, MBA; Mr Berndt Brunow, Board member of Oy Karl Fazer Ab; Mr Karl Grotenfelt, LLM, Chairman of the Board of Directors of Famigro Oy; Dr Georg Holzhey, former Executive Vice President of UPM and Director of G. Haindl'sche Papierfabriken KGaA; Ms Wendy E. Lane, Chairman of American investment firm Lane Holdings, Inc.; Mr Jussi Pesonen, President and CEO of UPM; Ms Ursula Ranin, LLM, B.Sc. (Econ.); and Mr Veli-Matti Reinikkala, President of ABB Process Automation Division, were re-elected as members of the Board of Directors. The term of office of the members of the Board of Directors lasts until the end of the next Annual General Meeting. At the assembly meeting of the Board of Directors, Mr Björn Wahlroos was elected as Chairman, and Mr Berndt Brunow and Mr Georg Holzhey were elected as Vice Chairmen. In addition, the Board of Directors elected from its members the Audit Committee with Mr Michael C. Bottenheim as Chairman, and Ms Wendy E. Lane and Mr Veli-Matti Reinikkala as members. The Human Resources Committee was elected, with Mr Berndt Brunow as Chairman, and Mr Georg Holzhey and Ms Ursula Ranin as members. Furthermore, the Nominating and Corporate Governance Committee was elected, with Mr Björn Wahlroos as Chairman, and the other members being Mr Matti Alahuhta and Mr Karl Grotenfelt. Litigation Certain competition authorities are continuing investigations into alleged antitrust activities with respect to various products of UPM. The authorities have granted UPM conditional full immunity with respect to certain conduct disclosed to them. UPM has settled or agreed to settle the class-action lawsuits in the US except for those filed by indirect purchasers of labelstock. The remaining litigation matters may last several years. No provisions have been made in relation to these investigations. Events after the balance sheet date On 14 January 2009, UPM's associated company Oy Metsä-Botnia Ab announced the permanent closure of the Kaskinen pulp mill in the first quarter of 2009. The special charges resulting from the closure will reduce UPM's associated company results by approximately EUR 27 million in the first quarter of 2009. UPM's share in Oy Metsä-Botnia Ab is 47%. On 15 January 2009, UPM sold its former paper mill and related assets in Miramichi, New Brunswick, Canada, to Umoe Solar AS of Norway. The sale includes the closed paper mill site, woodlands operations, and two sawmills located nearby in Bathurst and Blackville. UPM records an income of approximately EUR 20 million on the sale as a special item in the first quarter of 2009. The Group's management is not aware of any other significant events occurring after 31 December 2008. Outlook for 2009 Economic growth in UPM's main markets is forecast to contract. This will have an impact on consumer demand, construction activity, and advertising expenditure in media and thus on demand for graphic papers. Due to estimated lower demand for most of UPM's products, UPM is curtailing production. The company seeks cost savings through flexible ways of operating mills and units. Higher external sales volume is forecast in Energy for 2009 due to lower consumption in own production. Average market price for electricity is estimated to be lower. UPM's paper deliveries for 2009 are forecast to be lower than last year. Deliveries for the first quarter of the year are estimated to be clearly lower than in the fourth quarter of 2008. In the beginning of the year the average price for UPM's papers is higher than during the fourth quarter 2008. Demand for self-adhesive labelstock is estimated to decline slightly from 2008 in all markets. On average labelstock prices are expected to remain about the same as last year. Demand for birch and spruce plywood is forecast to be clearly lower than last year. Cost of wood raw material will gradually be lower but also pressure on sales prices continues. For the group wood and other raw material costs are expected to be lower than 2008, however, main impact would be during the second half of the year. Also lower fixed costs are expected. Capital expenditure for 2009 is forecast to be about EUR 400 million. Dividend for 2008 The Board of Directors will propose to the Annual General Meeting to be held on 25 March 2009 that a dividend of EUR 0.40 per share be paid in respect of the 2008 financial year (EUR 0.75). It is proposed that the dividend be paid on 8 April 2009. Financial information in 2009 The Annual Report for 2008 will be published on the company's website www. upm-kymmene.com on 27 February 2009. The printed Annual Report will be available in the week beginning 16 March 2009. Interim Report January-March 2009: 29 April 2009 Interim Report January-June 2009: 4 August 2009 Interim Report January-September 2009: 29 October 2009 Business area reviews Energy Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ 08 08 08 08 07 07 07 07 Sales, EUR million 141 129 103 105 112 89 81 97 EBITDA, EUR million 1) 76 58 34 39 43 24 20 31 % of sales 53.9 45.0 33.0 37.1 38.4 27.0 24.7 32.0 Share of results of -11 -8 -2 -5 -4 -6 -8 1 associated companies and joint ventures, EUR million Depreciation, -3 -1 -1 -1 -1 -1 -1 -3 amortisation and impairment charges, EUR million Operating profit, 62 49 31 33 38 17 11 29 EUR million % of sales 44.0 38.0 30.1 31.4 33.9 19.1 13.6 29.9 Special items, EUR - - - - - - - - million Operating profit 62 49 31 33 38 17 11 29 excl. special items, EUR million % of sales 44.0 38.0 30.1 31.4 33.9 19.1 13.6 29.9 Electricity 2,731 2,653 2,344 2,439 2,716 2,576 2,415 2,642 deliveries, MWh Q1-Q4/ Q1-Q4/ 08 07 Sales, EUR million 478 379 EBITDA, EUR million 1) 207 118 % of sales 43.3 31.1 Share of results of -26 -17 associated companies and joint ventures, EUR million Depreciation, -6 -6 amortisation and impairment charges, EUR million Operating profit, 175 95 EUR million % of sales 36.6 25.1 Special items, EUR - - million Operating profit 175 95 excl. special items, EUR million % of sales 36.6 25.1 Electricity 10,167 10,349 deliveries, MWh Capital employed 951 994 (average), EUR million ROCE (excl. special 18.4 9.6 items), % 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint venture, and special items. Q4 of 2008 compared with Q4 of 2007 The operating profit excluding special items for Energy was EUR 62 million, EUR 24 million higher than last year (38 million). Sales totalled EUR 141 million (112 million), whereof EUR 57 million was external sales (25 million). The electricity sales volume was 2.7 TWh in the quarter (2.7 TWh). Profitability improved compared with the same period last year. The main reasons were the high volume of hydropower and the higher average electricity sales price. The average electricity sales price increased by 29% to EUR 42.3/MWh (32.9/MWh). 2008 compared with 2007 The operating profit excluding special items for Energy was EUR 175 million, EUR 80 million higher than in 2007. Sales totalled EUR 478 million (379 million), whereof EUR 137 million was external sales (59 million). The electricity sales volume was 10.2 TWh (10.3 TWh). Profitability improved from the year 2007, mainly due to the higher average electricity sales price. The average electricity sales price increased by 33% to EUR 37.5/MWh (28.2/MWh). The hydropower volume increased by 21% to 3.8 TWh, which had a positive impact on the average cost of procuring electricity. Market review In 2008, energy markets were characterised by high volatility. The average price in the Nordic electricity exchange rose by 60% in 2008 from the previous year, to EUR 44.7/MWh (27.9/MWh). In the early part of the year oil and coal prices increased rapidly in the global energy markets. At the same time CO2 emission allowance prices increased compared with 2007 as the second phase of the EU emission trading scheme started. The combination of higher fuel and CO2 prices drove the increase in electricity market prices. In the latter part of the year fossil fuel, CO2 emission allowance and electricity forward prices started to decline. In December the spot electricity price in the Nordic power exchange was EUR 44.5/MWh and the one year forward price averaged EUR 39.6/MWh. Pulp Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q4/ 08 08 08 08 07 07 07 07 08 Sales, EUR million 200 228 247 269 187 208 208 205 944 EBITDA, EUR million 1) 9 38 35 57 19 50 57 62 139 % of sales 4.5 16.7 14.2 21.2 10.2 24.0 27.4 30.2 14.7 Share of results of -4 44 20 26 6 19 12 21 86 associated companies and joint ventures, EUR million Depreciation, -73 -22 -17 -16 -16 -13 -58 -14 -128 amortisation and impairment charges, EUR million Operating profit, -76 60 38 67 9 56 11 69 89 EUR million % of sales -38.0 26.3 15.4 24.9 4.8 26.9 5.3 33.7 9.4 Special items, EUR -59 - - - - - -43 - -59 million 2) Operating profit -17 60 38 67 9 56 54 69 148 excl. special items, EUR million % of sales -8.5 26.3 15.4 24.9 4.8 26.9 26.0 33.7 15.7 Pulp deliveries, 421 480 527 554 446 492 501 488 1,982 1,000 t Capital employed 1,674 (average), EUR million ROCE (excl. special items), % 8.8 Q1-Q4/ 07 Sales, EUR million 808 EBITDA, EUR million 1) 188 % of sales 23.3 Share of results of 58 associated companies and joint ventures, EUR million Depreciation, -101 amortisation and impairment charges, EUR million Operating profit, 145 EUR million % of sales 17.9 Special items, EUR -43 million 2) Operating profit 188 excl. special items, EUR million % of sales 23.3 Pulp deliveries, 1,927 1,000 t Capital employed 1,423 (average), EUR million ROCE (excl. special 13.2 items), % 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint venture, and special items. 2) In 2008, special items of EUR 59 million relate to the closure of the Tervasaari pulp mill. Special items in 2007 comprise of a goodwill impairment charge of EUR 43 million. Q4 of 2008 compared with Q4 of 2007 The operating profit excluding special items for Pulp declined to a loss of EUR 17 million (profit of EUR 9 million). Sales totalled EUR 200 million (187 million). Pulp deliveries from UPM's own pulp mills declined 6% to 421,000 tonnes (446,000). Profitability weakened from the previous year, mainly due to persistently high wood costs. Also the significant production downtime during the period had a negative impact on the results. All of UPM's pulp mills were shut down for at least a week in December. The share of the results of the associated company Metsä-Botnia was EUR -4 million (6 million). 2008 compared with 2007 The operating profit excluding special items for Pulp declined to EUR 148 million (188 million). Sales totalled EUR 944 million (808 million). Pulp deliveries from UPM's own pulp mills increased by 3% to 1,982,000 tonnes (1,927,000). Profitability decreased from the year 2007, mainly due to higher wood costs. The share of the results of the associated company Metsä-Botnia was EUR 86 million (58 million). The improvement came from Metsä-Botnia's new pulp mill in Uruguay, started up in November 2007, which more than compensated for the weakened profitability in Metsä-Botnia's Finnish operations. In December UPM closed down the Tervasaari pulp mill (annual capacity 210,000 tonnes of pulp). As special items UPM booked charges of EUR 59 million consisting of impairment charges of EUR 51 million and other costs of EUR 8 million related to the closure of the mill. Market review In the first half of 2008, chemical market pulp demand and prices increased from the previous year. Global chemical pulp market prices peaked during the second quarter in USD and in October in euro terms. Since then market pulp prices have fallen very rapidly as the weakening global economy led to decreasing pulp demand and growing pulp producer inventories. The average softwood pulp (NBSK) market price in euro terms in 2008 was practically unchanged from 2007, at EUR 579/tonne. However, at the end of the year, the NBSK price had fallen to EUR 458/tonne, which is 21% below the year's average price during the year. The average hardwood pulp (BHKP) market price in euro terms, at EUR 536/ton, increased some 4% from 2007 (e 513/ton). However, at the end of the year the price stood at EUR 417/ton, 22% below the average price level. Forest and timber Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q4/ 08 08 08 08 07 07 07 07 08 Sales, EUR million 419 475 518 508 537 490 514 498 1,920 EBITDA, EUR million 1) -52 -4 4 4 33 22 53 51 -48 % of sales -12.4 -0.8 0.8 0.8 6.1 4.5 10.3 10.2 -2.5 Change in fair -2 4 20 28 47 21 14 -3 50 value of biological assets and wood harvested, EUR million Share of results of -1 - - 1 - - 1 - - associated companies and joint ventures, EUR million Depreciation, -6 -36 -7 -7 -26 -5 -7 -6 -56 amortisation and impairment charges, EUR million Operating profit, -63 -38 17 25 60 38 61 42 -59 EUR million % of sales -15.0 -8.0 3.3 4.9 11.2 7.8 11.9 8.4 -3.1 Special items, EUR -2 -33 - -1 -13 - - - -36 million 2) Operating profit -61 -5 17 26 73 38 61 42 -23 excl. special items, EUR million % of sales -14.6 -1.1 3.3 5.1 13.6 7.8 11.9 8.4 -1.2 Sawn timber 421 510 628 573 537 505 666 617 2,132 deliveries, 1,000 m3 Capital employed 1,878 (average), EUR million ROCE (excl. special -1.2 items), % Q1-Q4/ 07 Sales, EUR million 2,039 EBITDA, EUR million 1) 159 % of sales 7.8 Change in fair 79 value of biological assets and wood harvested, EUR million Share of results of 1 associated companies and joint ventures, EUR million Depreciation, -44 amortisation and impairment charges, EUR million Operating profit, 201 EUR million % of sales 9.9 Special items, EUR -13 million 2) Operating profit 214 excl. special items, EUR million % of sales 10.5 Sawn timber 2,325 deliveries, 1,000 m3 Capital employed 1,679 (average), EUR million ROCE (excl. special 12.7 items), % 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint venture, and special items. 2) Special items in 2008 include an impairment charge of EUR 31 million related to fixed assets of the Finnish sawmills. In 2007, special items include impairment charges of EUR 19 million related mainly to Miramichi's forestry and sawmilling operations and a gain of EUR 6 million on sale of estate assets. Q4 of 2008 compared with Q4 of 2007 The operating profit excluding special items for Forest and timber fell to a loss of EUR 61 million (profit of EUR 73 million). Sales declined 22% to EUR 419 million (537 million). Sawn timber deliveries decreased by 22% to 421,000 cubic metres (537,000 cubic metres). Profitability contracted from the same period last year, mainly due to sharply lower prices of sawn timber and a write down of EUR 36 million in wood inventory. The average price of sawn timber declined approximately 22% from the same period last year. The increase in the fair value of biological assets (growing trees) was EUR 12 million (74 million). The cost of wood raw material harvested from the Group's own forests was EUR 14 million (27 million). The net effect was EUR 2 million negative (47 million positive). 2008 compared with 2007 The operating profit excluding special items for Forest and timber declined to a loss of EUR 23 million (profit of EUR 214 million). Sales decreased by 6% to EUR 1,920 million (2,039 million). Sawn timber deliveries contracted 8% to 2,132,000 cubic metres (2,325,000 cubic metres). Profitability declined from the same period last year, mainly due to significantly lower prices of sawn timber and higher cost of wood, including a write down of EUR 36 million in wood inventory booked at the end of the year. The average price of sawn timber fell approximately 17% from the previous year. The increase in the fair value of biological assets net of wood harvested was EUR 50 million (79 million), including the increase of EUR 138 million (195 million) in the value of growing trees and the cost of EUR 88 million (116 million) for wood harvested from own forests. In June UPM closed down the Luumäki timber components and planing mill. In December UPM closed down the Leivonmäki sawmill (annual capacity 80,000 cubic metres of sawn timber). Special items of EUR 36 million in 2008 include impairment charges of EUR 31 million related to the Finnish sawmilling operations recognised in September, and other restructuring costs of EUR 5 million. The primary reasons for the impairment were the increased cost of wood raw material, weakened demand for sawn goods in the main markets and lower sales prices. Market review The market balance of sawn timber continued to weaken substantially throughout the year. Demand for both redwood and whitewood timber declined, partly due to the weakening situation in the construction industry. The sawn timber supply in Europe remained high, leading to a significant reduction in price. The decline in sawn timber demand and prices was further intensified towards the end of the year. In Finland fibre wood market prices remained at the high level that was reached in 2007 and only started declining during the fourth quarter as wood demand slowed down. Log market prices decreased from the previous year but at a slower pace than sawn timber prices. Wood purchases in the Finnish wood market were some 25% lower than in 2007. The mild winter and the anticipated prohibitive Russian wood export duties contributed to the slow market activity and persistently high prices. In Russia the authorities continued to implement the increase in export duties for round wood by raising the tariff from EUR 10 to EUR 15 per cubic metre in April. According to the original plan, the tariff was to be raised to EUR 50 per cubic metre from the beginning of 2009. However, in November 2008 it was announced that the tariff increase has been postponed until October-December 2009. Paper Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ 08 08 08 08 07 07 07 07 Sales, EUR million 1,750 1,761 1,727 1,773 1,864 1,856 1,815 1,793 EBITDA, EUR million 1) 189 271 216 209 221 240 248 230 % of sales 10.8 15.4 12.5 11.8 11.9 12.9 13.7 12.8 Share of results of 1 - - - - - - - associated companies and joint ventures, EUR million Depreciation, -264 -388 -156 -159 -169 -167 -487 -172 amortisation and impairment charges, EUR million Operating profit, -126 -114 60 51 -19 73 -249 58 EUR million % of sales -7.2 -6.5 3.5 2.9 -1.0 3.9 -13.7 3.2 Special items, EUR -153 -227 - 1 -71 - -328 - million 2) Operating profit 27 113 60 50 52 73 79 58 excl. special items, EUR million % of sales 1.5 6.4 3.5 2.8 2.8 3.9 4.4 3.2 Deliveries, 1,809 1,760 1,749 1,772 1,940 1,933 1,872 1,785 publication papers, 1,000 t Deliveries, fine 784 863 923 981 977 954 960 968 and speciality papers, 1,000 t Paper deliveries 2,593 2,623 2,672 2,753 2,917 2,887 2,832 2,753 total, 1,000 t Q1-Q4/ Q1-Q4/ 08 07 Sales, EUR million 7,011 7,328 EBITDA, EUR million 1) 885 939 % of sales 12.6 12.8 Share of results of 1 - associated companies and joint ventures, EUR million Depreciation, -967 -995 amortisation and impairment charges, EUR million Operating profit, -129 -137 EUR million % of sales -1.8 -1.9 Special items, EUR -379 -399 million 2) Operating profit 250 262 excl. special items, EUR million % of sales 3.6 3.6 Deliveries, 7,090 7,530 publication papers, 1,000 t Deliveries, fine 3,551 3,859 and speciality papers, 1,000 t Paper deliveries 10,641 11,389 total, 1,000 t Capital employed 6,503 7,317 (average), EUR million ROCE (excl. special 3.8 3.6 items), % 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint venture, and special items. 2) In 2008, special items include the goodwill impairment charge of EUR 230 million impairment charges of EUR 101 million and other restructuring costs of EUR 42 million related to the closure of the Kajaani paper mill, and other restructuring costs, net of EUR 6 million. Special items in 2007 include personnel expenses of EUR 44 million and other costs of EUR 36 million related to the closure of the Miramichi paper mill, and an income of EUR 8 million related to other restructuring measures. Special items also include a goodwill impairment charge of EUR 307 million, an impairment charge of EUR 22 million and personnel costs of EUR 10 million related to the Miramichi paper mill, and income of EUR 11 million related to impairment reversals. Q4 of 2008 compared with Q4 of 2007 The operating profit excluding special items for Paper was EUR 27 million, EUR 25 million lower than a year ago (52 million). Sales were EUR 1,750 million (1,864 million). Paper deliveries decreased by 11% to 2,593,000 tonnes (2,917,000). Paper deliveries for publication papers (magazine papers and newsprint) decreased by 7% and for fine and speciality papers by 20% from the previous year. Profitability weakened compared with the corresponding period last year. The average price for all paper deliveries when translated into euros was 6% higher, although GBP was about 19% weaker against euro. The average paper price increased mainly due to the higher magazine paper prices. In response to the weakening market situation, extensive production downtime was taken during the quarter. The production cuts decreased the cost efficiency of the production. Energy costs were higher than a year ago. Paper inventory levels were reduced significantly during the quarter. 2008 compared with 2007 The operating profit excluding special items for Paper was EUR 250 million, EUR 12 million lower than in the previous year (262 million). Sales decreased to EUR 7,011 million (7,328 million). Paper deliveries decreased by almost 7% to 10,641,000 tonnes (11,389,000). Deliveries of publication papers (magazine papers and newsprint) decreased by 6% and those of fine and speciality papers by 8% from the previous year. At the end of the period, paper inventory levels were approximately 200,000 tonnes lower than in 2007. Profitability decreased from the previous year, due to the markedly higher energy and fibre costs. Higher paper prices offset most of the negative impact of lower delivery volumes. The stronger euro against both GBP and USD weakened the profitability of exports. When translated into euros, the average price for all paper deliveries was over 2% higher than a year ago. The fixed costs were lower than in 2007. The production of the Miramichi paper mill in Canada was stopped in August 2007. During 2008, Kajaani mill PM4 in Finland was temporarily idled from March, and at Nordland fine paper mill PM2 in Germany production was temporarily shut down since early summer until the end of the year. In France, Docelles mill, there was one month production curtailment in August. In China, the Changshu fine paper mill took considerable production downtime during the fourth quarter to meet an abrupt decline in market demand. The Kajaani paper mill in Finland, with a capacity of 640,000 t/a of newsprint, special newsprint and uncoated magazine papers, was shut down permanently in December 2008. UPM booked as a special item an approximately EUR 101 million write-off in fixed assets and made a provision for the layoff and other closure costs of approximately EUR 42 million with a cash impact mainly in 2009. Additionally, Paper recorded a EUR 230 million impairment charge from the business area's goodwill. The impairment resulted from lower-than-forecast newsprint market demand in Europe and continued overcapacity in Europe combined with increased costs. Market review Demand for publication papers in Europe was 2% lower than a year ago and for fine papers demand decreased by 3%. In North America, the demand for publication papers continued to decline and demand was 10% down from last year. In Asia demand for fine papers continued to grow although at a slower pace than last year. In Europe the average market prices for magazine papers in local currencies increased by about 5% from 2007. The standard newsprint market prices were 8% lower. The average market price for coated fine papers decreased by 3% and for uncoated fine papers by 2% from the previous year. In North America the average US dollar prices for magazine papers were 20% higher. In Asia market prices for fine papers increased. Label Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q4/ 08 08 08 08 07 07 07 07 08 Sales, EUR million 233 239 245 242 242 245 255 256 959 EBITDA, EUR million 1) -1 9 15 11 16 19 23 27 34 % of sales -0,4 3.8 6.1 4.5 6.6 7.8 9.0 10.5 3.5 Depreciation, -16 -8 -7 -8 -8 -7 -7 -7 -39 amortisation and impairment charges,EUR million Operating profit, -38 1 8 3 12 12 16 20 -26 EUR million % of sales -16,3 0.4 3.3 1.2 5.0 4.9 6.3 7.8 -2.7 Special items, EUR -28 - - - 4 - - - -28 million 2) Operating profit -10 1 8 3 8 12 16 20 2 excl. special items, EUR million % of sales -4.3 0.4 3.3 1.2 3.3 4.9 6.3 7.8 0.2 Capital employed 510 (average), EUR million ROCE (excl. special 0.4 items), % Q1-Q4/ 07 Sales, EUR million 998 EBITDA, EUR million 1) 85 % of sales 8.5 Depreciation, -29 amortisation and impairment charges, EUR million Operating profit, 60 EUR million % of sales 6.0 Special items, EUR 4 million 2) Operating profit 56 excl. special items, EUR million % of sales 5.6 Capital employed 420 (average), EUR million ROCE (excl. special 13.3 items), % 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint venture, and special items. 2) In 2008, special items of EUR 28 million relate to measures to reduce coating capacity and close two slitting terminals in Europe. Special items in 2007 include an income of EUR 4 million related to restructuring measures. Q4 of 2008 compared with Q4 of 2007 The operating loss excluding special items for Label was EUR 10 million (profit of EUR 8 million). Sales were EUR 233 million (242 million). The profitability of the business was clearly lower than in 2007. Material costs were higher and delivery volumes fell. Also depreciation of GBP had a negative effect on profitability. Prices increased from 2007. Delivery volumes of self-adhesive label materials declined in both Europe and North America. In Asia, volumes increased even if the growth rate was much slower than a year before. 2008 compared with 2007 The operating profit of Label excluding special items declined to EUR 2 million from EUR 56 million. Sales were EUR 959 million, about 4% less than in the previous year (998 million). Profitability declined as material costs increased. Also the increase in fixed costs related to two new factories and decline in sales volume had a negative effect on profitability. Sales prices continued to contract until the first quarter of 2008. The price increases initiated since the first quarter improved prices and the average price of sales when translated into euro was about the same as the year before. UPM Raflatac opened two new pressure sensitive label factories. In January a factory in Dixon, USA, was opened and in November a factory in Wroclaw, Poland, was started up. As market demand for self-adhesive labelstock began to decline, in November UPM announced a plan to reduce coating capacity and to close two slitting terminals in Europe. The aim is to secure the cost competitiveness of Label in all circumstances. UPM booked charges of EUR 28 million as special items related to the above measures. Market review In Europe, demand remained stable until summer but since then has contracted especially during the fourth quarter, reflecting a decline in consumer goods demand and customers' drive for inventory reductions. For the year the demand declined approximately 3% from last year both in Europe and North America. In the Asia-Pacific region, demand continued to grow but even there the pace of growth slowed in the autumn. Plywood Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q4/ 08 08 08 08 07 07 07 07 08 Sales, EUR million 102 121 150 157 154 126 150 161 530 EBITDA, EUR million 1) -5 3 22 26 20 8 20 23 46 % of sales -4.9 2.5 14.7 16.6 13.0 6.3 13.3 14.3 8.7 Depreciation, -5 -5 -6 -5 -5 -5 -5 -6 -21 amortisation and impairment charges, EUR million Operating profit, -10 -2 19 21 15 3 15 17 28 EUR million % of sales -9.8 -1.7 12.7 13.4 9.7 2.4 10.0 10.6 5.3 Special items, EUR - - 3 - - - - - 3 million 2) Operating profit -10 -2 16 21 15 3 15 17 25 excl. special items, EUR million % of sales -9.8 -1.7 10.7 13.4 9.7 2.4 10.0 10.6 4.7 Deliveries, 160 188 227 231 239 204 247 255 806 plywood, 1,000 m3 Capital employed 307 (average), EUR million ROCE (excl. special 8.1 items), % Q1-Q4/ 07 Sales, EUR million 591 EBITDA, EUR million 1) 71 % of sales 12.0 Depreciation, -21 amortisation and impairment charges, EUR million Operating profit, 50 EUR million % of sales 8.5 Special items, EUR - million 2) Operating profit 50 excl. special items, EUR million % of sales 8.5 Deliveries, 945 plywood, 1,000 m3 Capital employed 300 (average), EUR million ROCE (excl. special 16.7 items), % 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint venture, and special items. 2) Special items in 2008 include reversals of provisions related to the disposed Kuopio plywood mill. Q4 of 2008 compared with Q4 of 2007 The operating loss excluding special items for Plywood was EUR 10 million (profit of EUR 15 million). Sales decreased by EUR 52 million to EUR 102 million as Plywood deliveries declined by 79,000 m3 to 160,000 m3. Profitability for Plywood declined from last year due to lower delivery volumes and lower prices. The cost of wood logs was higher than in 2007. The rapid decline in new orders led to reduction of production at all mills. 2008 compared with 2007 The operating profit excluding special items for Plywood was EUR 25 million, EUR 25 million less than in 2007 (50 million). Sales were EUR 530 million (591 million). Plywood deliveries were 806,000 m3 (945,000). Profitability for Plywood declined during the second half of the year due to lower deliveries. The cost of wood logs increased from 2007. The average price for all plywood deliveries was higher than in 2007 although prices started to decline in the latter part of the year. The availability of logs improved and returned to normal. In the second half of the year the decline in new orders resulted in reduction in production at all mills, and UPM decided to temporarily shut down the Heinola mill from 19 January 2009 onwards. Market review In 2008, plywood demand was still brisk in the first half of the year but it has declined since then due to sharply falling construction activity in Europe. Transport and other industrial uses of plywood have followed the same cycle. Declining demand in Europe has left much idle capacity and led to reduction of inventory levels in all parts of the chain. Other operations Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ 08 08 08 08 07 07 07 07 Sales, EUR million 34 52 66 48 80 83 160 127 EBITDA, EUR million 1) -38 3 -13 -9 -1 3 -10 -6 % of sales -111.8 5.8 -19.7 -18.8 -1.3 3.6 -6.3 -4.7 Share of results of -1 -1 3 - - 1 1 -1 associated companies and joint ventures, EUR million Depreciation, 2 -2 -5 -3 -11 -8 -2 -7 amortisation and impairment charges, EUR million Operating profit, -35 4 -16 -7 27 -4 60 -14 EUR million % of sales -102.9 7.7 -24.2 -14.6 33.8 -4.8 37.5 -11.0 Special items, EUR 2 4 -1 5 28 - 71 - million 2) Operating profit -37 0 -15 -12 -1 -4 -11 -14 excl. special items, EUR million % of sales -108.8 0.0 -22.7 -25.0 -1.3 -4.8 -6.9 -11.0 Q1-Q4/Q1-Q4/ 08 07 Sales, EUR million 200 450 EBITDA, EUR million 1) -57 -14 % of sales -28.5 -3.1 Share of results of 1 1 associated companies and joint ventures, EUR million Depreciation, -8 -28 amortisation and impairment charges, EUR million Operating profit, -54 69 EUR million % of sales -27.0 15.3 Special items, EUR 10 99 million 2) Operating profit -64 -30 excl. special items, EUR million % of sales -32.0 -6.7 Capital employed 137 217 (average), EUR million ROCE (excl. special -46.7 -13.8 items), % 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint venture, and special items. 2) In 2008, special items include an adjustment of EUR 5 million to sales of disposals of 2007 and other restructuring income net of EUR 5 million. In 2007 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, and other impairment charges and restructuring costs of EUR 18 million. In addition, special items 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. Other operations include development units (the wood plastic composite unit ProFi, RFID tags, and biofuels) and corporate administration. Q4 of 2008 compared with Q4 of 2007 Excluding special items, the operating loss for Other operations was EUR 37 million (loss of EUR 1 million). Sales amounted to EUR 34 million (80 million). The result was unfavourably impacted by currency and other derivatives. The development units incurred an operating loss. RFID and UPM ProFi expanded their production during the quarter. 2008 compared with 2007 Excluding special items, the operating loss of Other operations was EUR 64 million (loss of EUR 30 million). Sales were EUR 200 million (450 million). Operating profit and sales were affected by the following disposals made in 2007: the real estate company UPM-Asunnot Oy in April and Walki Wisa in June and port operators Oy Rauma Stevedoring Ltd and Oy Botnia Shipping Ab in October. Logistic services represented about half of the sales, of which a major part was internal. Development units made an operating loss. Development units continued to invest in product development. During the year UPM established a new UPM Biorefinery Development Centre for the research of biofuels and biochemicals in Lappeenranta, Finland, and opened a new state-of-the-art RFID manufacturing site in Guangzhou, China, and a new wood composite UPM ProFi factory in Bruchsal, Germany. Helsinki, 5 February 2009 UPM-Kymmene Corporation Board of Directors Financial information This Financial Review is unaudited Consolidated income statement EUR million Q4/ Q4/ Q1-Q4/ Q1-Q4/ 2008 2007 2008 2007 Sales 2,315 2,512 9,461 10,035 Other operating 9 87 83 200 income Costs and expenses -2,227 -2,270 -8,407 -8,650 Change in fair -2 47 50 79 value of biological assets and wood harvested Share of results of -16 2 62 43 associated companies and joint ventures Depreciation, -365 -236 -1,225 -1,224 amortisation and impairment charges Operating profit -286 142 24 483 (loss) Gains on - - 2 2 available-for-sale investments, net Exchange rate and -14 -4 -25 -2 fair value gains and losses Interest and other -60 -46 -202 -191 finance costs, net Profit (loss) -360 92 -201 292 before tax Income taxes 74 -63 21 -211 Profit (loss) for -286 29 -180 81 the period Attributable to: Equity holders of -287 32 -179 85 the parent company Minority interest 1 -3 -1 -4 -286 29 -180 81 Earnings per share for profit (loss) attributable to the equity holders of the parent company Basic earnings per -0.56 0.06 -0.35 0.16 share, EUR Diluted earnings -0.56 0.06 -0.35 0.16 per share, EUR Consolidated balance sheet EUR million 31.12.2008 31.12.2007 ASSETS Non-current assets Goodwill 933 1,163 Other intangible assets 403 392 Property, plant and equipment 5,688 6,179 Investment property 19 14 Biological assets 1,133 1,095 Investments in associated 1,263 1,193 companies and joint ventures Available-for-sale investments 116 116 Non-current financial assets 361 82 Deferred tax assets 258 284 Other non-current assets 201 121 10,375 10,639 Current assets Inventories 1,354 1,342 Trade and other receivables 1,686 1,717 Income tax receivables 24 18 Cash and cash equivalents 330 237 3,394 3,314 Assets classified as held for sale 12 - Total assets 13,781 13,953 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent company Share capital 890 890 Translation differences -295 -158 Fair value and other reserves 130 193 Reserve for invested 1,145 1,067 non-restricted equity Retained earnings 4,236 4,778 6,106 6,770 Minority interest 14 13 Total equity 6,120 6,783 Non-current liabilities Deferred tax liabilities 658 745 Retirement benefit obligations 408 441 Provisions 191 171 Interest-bearing liabilities 4,534 3,384 Other liabilities 25 12 5,816 4,753 Current liabilities Current interest-bearing 537 931 liabilities Trade and other payables 1,258 1,443 Income tax payables 33 43 1,828 2,417 Liabilities related to assets 17 - classified as held for sale Total liabilities 7,661 7,170 Total equity and liabilities 13,781 13,953 Consolidated statement of changes in equity Attributable to equity holders of the parent company Share Share Treasury Translation Fair EUR million capital premium shares differences value and reserve other reserves Balance at 1 January 2007 890 826 - -89 278 Translation differences - - - -69 - Net investment hedge, - - - - - net of tax Cash flow hedges fair value - - - - 68 gains/losses, net of tax transfers from - - - - -41 equity, net of tax Available-for-sale investments fair value - - - - - gains/losses, net of tax transfers to income - - - - -1 statement, net of tax Profit for the period - - - - - Total recognised income - - - -69 26 and expense for the period Share options exercised - - - - - Acquisition of - - -266 - - treasury shares Cancellation of - - 266 - - treasury shares Share-based - - - - 13 compensation, net of tax Dividend paid - - - - - Business combinations - - - - - Transfers and others - -826 - - -124 Total of other - -826 - - -111 changes in equity Balance at 31 December 2007 890 - - -158 193 Translation differences - - - -193 - Other items - - - - - Net investment hedge, - - - 56 - net of tax Cash flow hedges fair value - - - - 29 gains/losses, net of tax transfers from - - - - -62 equity, net of tax Available-for-sale investments fair value - - - - - gains/losses, net of tax transfers to income - - - - - statement, net of tax Loss for the period - - - - - Total recognised - - - -137 -33 income and expense for the period Share options exercised - - - - - Acquisition of - - - - - treasury shares Cancellation of - - - - - treasury shares Share-based - - - - -29 compensation, net of tax Dividend paid - - - - - Business combinations - - - - - Other items - - - - -1 Total of other - - - - -30 changes in equity Balance at 31 December 2008 890 - - -295 130 Reserve for Retained Total Minority Total invested earnings interest equity non-restricted EUR million equity Balance at 1 January 2007 - 5,366 7,271 18 7,289 Translation differences - - -69 - -69 Net investment hedge, - - - - - net of tax Cash flow hedges fair value - - 68 - 68 gains/losses, net of tax transfers from - - -41 - -41 equity, net of tax Available-for-sale investments fair value - - - - - gains/losses, net of tax transfers to income - - -1 - -1 statement, net of tax Profit for the period - 85 85 -4 81 Total recognised - 85 42 -4 38 income and expense for the period Share options exercised 104 - 104 - 104 Acquisition of - - -266 - -266 treasury shares Cancellation of - -266 - - - treasury shares Share-based - - 13 - 13 compensation, net of tax Dividend paid - -392 -392 - -392 Business combinations - - - -1 -1 Transfers and others 963 -15 -2 - -2 Total of other 1,067 -673 -543 -1 -544 changes in equity Balance at 1,067 4,778 6,770 13 6,783 31 December 2007 Translation differences - - -193 - -193 Other items - -12 -12 - -12 Net investment hedge, - - 56 - 56 net of tax Cash flow hedges fair value - - 29 - 29 gains/losses, net of tax transfers from - - -62 - -62 equity, net of tax Available-for-sale investments fair value - - - - - gains/losses, net of tax transfers to income - - - - - statement, net of tax Loss for the period - -179 -179 -1 -180 Total recognised - -191 -361 -1 -362 income and expense for the period Share options exercised 78 - 78 - 78 Acquisition of - - - - - treasury shares Cancellation of - - - - - treasury shares Share-based - 33 4 - 4 compensation, net of tax Dividend paid - -384 -384 - -384 Business combinations - - - 2 2 Other items - - -1 - -1 Total of other 78 -351 -303 2 -301 changes in equity Balance at 31 1,145 4,236 6,106 14 6,120 December 2008 Consolidated cash flow statement Year ended 31 December EUR million 2008 2007 Cash flow from operating activities Profit (loss) for the period -180 81 Adjustments to profit (loss) 1,232 1,390 for the period 1) Interest received 9 4 Interest paid -202 -191 Dividends received 18 23 Other financial items, net -41 -72 Income taxes paid -76 -164 Change in working capital 2) -132 -204 Net cash generated 628 867 from operating activities Cash flow from investing activities Acquisition of shares in -19 -25 associated companies Capital expenditure -558 -673 Proceeds from disposal of 6 205 subsidiary shares, net of cash Proceeds from disposal of shares 4 2 in associated companies Proceeds from disposal of 2 3 available-for-sale investments Proceeds from sale of tangible 33 71 and intangible assets Proceeds from non-current receivables - 1 Increase in non-current receivables - -9 Net cash used in -532 -425 investing activities Cash flow from financing activities Proceeds from 1,083 965 non-current liabilities Payments of -624 -879 non-current liabilities Proceeds from -153 66 (payment of) current liabilities, net Share options 78 104 exercised Dividends paid -384 -392 Purchase of - -266 treasury shares Other financing -1 - cash flow Net cash used in -1 -402 financing activities Change in cash and 95 40 cash equivalents Cash and cash equivalents 237 199 at the beginning of year Foreign exchange effect on cash -2 -2 Change in cash and cash equivalents 95 40 Cash and cash equivalents at year-end 330 237 Notes to the consolidated cash flow statement 1) Adjustments to net profit (loss) Taxes -21 211 Depreciation, amortisation and 1,225 1,224 impairment charges Share of results in associated -62 -43 companies and joint ventures Profits and losses -28 -157 on sale of non-current assets Gains on -2 -2 available-for-sale investments, net Finance costs, net 227 193 Settlement of restructuring charges -56 - One-time contributions to -85 -30 pension funds Other adjustments 34 -6 Total 1,232 1,390 2) Change in working capital Inventories -55 -152 Current receivables 138 -129 Current non-interest bearing -215 77 liabilities Total -132 -204 Quarterly information EUR million Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ 08 08 08 08 07 07 07 Sales 2,315 2,358 2,378 2,410 2,512 2,467 2,537 Other operating 9 23 11 40 87 15 80 income Costs and expenses -2,227 -1,998 -2,074 -2,108 -2,270 -2,116 -2,145 Change in fair -2 4 20 28 47 21 14 value of biological assets and wood harvested Share of results of -16 35 21 22 2 14 6 associated companies and joint ventures Depreciation, -365 -462 -199 -199 -236 -206 -567 amortisation and impairment charges Operating profit (loss) -286 -40 157 193 142 195 -75 Gains on - - 2 - - - - available-for-sale investments, net Exchange rate and -14 - -1 -10 -4 -9 8 fair value gains and losses Interest and other -60 -50 -43 -49 -46 -42 -54 finance costs, net Profit (loss) -360 -90 115 134 92 144 -121 before tax Income taxes 74 3 -25 -31 -63 -25 -77 Profit (loss) for -286 -87 90 103 29 119 -198 the period Attributable to: Equity holders of -287 -86 92 102 32 120 -198 the parent company Minority interest 1 -1 -2 1 -3 -1 - -286 -87 90 103 29 119 -198 Basic earnings per -0.56 -0.17 0.18 0.20 0.06 0.23 -0.38 share, EUR Diluted earnings -0.56 -0.17 0.18 0.20 0.06 0.23 -0.38 per share, EUR Earnings per share, -0.19 0.25 0.17 0.19 0.24 0.23 0.28 excluding special items, EUR Average number of 519,979 519,999 517,622 512,581 514,085 527,012 527,111 shares basic (1,000) Average number of 519,979 519,999 516,791 513,412 515,322 529,530 530,980 shares diluted (1,000) Special items in -240 -256 2 5 -52 - -300 operating profit (loss) Operating profit -46 216 155 188 194 195 225 (loss), excl. special items % of sales -2.0 9.2 6.5 7.8 7.7 7.9 8.9 Special items -240 -250 2 5 -52 - -300 before tax Profit (loss) -120 160 113 129 144 144 179 before tax, excl. special items % of sales -5.2 6.8 4.8 5.4 5.7 5.8 7.1 Return on equity, neg. 7.8 5.4 5.9 7.1 6.9 8.5 excl. special items, % Return on capital neg. 7.7 5.7 6.5 6.9 6.8 8.3 employed, excl. special items, % EBITDA 178 378 313 337 351 366 411 % of sales 7.7 16.0 13.2 14.0 14.0 14.8 16.2 Share of results of associated companies and joint ventures Energy -11 -8 -2 -5 -4 -6 -8 Pulp -4 44 20 26 6 19 12 Forest and timber -1 - - 1 - - 1 Paper 1 - - - - - - Other operations -1 -1 3 - - 1 1 Total -16 35 21 22 2 14 6 EUR million Q1/ Q1-Q4/ Q1-Q4/ 07 08 07 Sales 2,519 9,461 10,035 Other operating 18 83 200 income Costs and expenses -2,119 -8,407 -8,650 Change in fair -3 50 79 value of biological assets and wood harvested Share of results of 21 62 43 associated companies and joint ventures Depreciation, -215 -1,225 -1,224 amortisation and impairment charges Operating profit (loss) 221 24 483 Gains on 2 2 2 available-for-sale investments, net Exchange rate and 3 -25 -2 fair value gains and losses Interest and other -49 -202 -191 finance costs, net Profit (loss) before tax 177 -201 292 Income taxes -46 21 -211 Profit (loss) for 131 -180 81 the period Attributable to: Equity holders of 131 -179 85 the parent company Minority interest - -1 -4 131 -180 81 Basic earnings per 0.25 -0.35 0.16 share, EUR Diluted earnings 0.25 -0.35 0.16 per share, EUR Earnings per share, 0.25 0.42 1.00 excluding special items, EUR Average number of 523,261 517,545 522,867 shares basic (1,000) Average number of 527,086 517,545 525,729 shares diluted (1,000) Special items in - -489 -352 operating profit (loss) Operating profit (loss), 221 513 835 excl. special items % of sales 8.8 5.4 8.3 Special items - -483 -352 before tax Profit (loss) 177 282 644 before tax, excl. special items % of sales 7.0 3.0 6.4 Return on equity, 7.3 3.4 7.4 excl. special items, % Return on capital 7.9 4.6 7.4 employed, excl. special items, % EBITDA 418 1,206 1,546 % of sales 16.6 12.7 15.4 Share of results of associated companies and joint ventures Energy 1 -26 -17 Pulp 21 86 58 Forest and timber - - 1 Paper - 1 - Other operations -1 1 1 Total 21 62 43 Deliveries Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ 08 08 08 08 07 07 07 07 Electricity, MWh 2,731 2,653 2,344 2,439 2,716 2,576 2,415 2,642 Pulp, 1,000 t 421 480 527 554 446 492 501 488 Sawn timber, 1,000 m3 421 510 628 573 537 505 666 617 Publication papers, 1,809 1,760 1,749 1,772 1,940 1,933 1,872 1,785 1,000 t Fine and speciality 784 863 923 981 977 954 960 968 papers, 1,000 t Paper deliveries 2,593 2,623 2,672 2,753 2,917 2,887 2,832 2,753 total, 1,000 t Plywood, 1,000 m3 160 188 227 231 239 204 247 255 Q1-Q4/ Q1-Q4/ 08 07 Electricity, MWh 10,167 10,349 Pulp, 1,000 t 1,982 1,927 Sawn timber, 1,000 m3 2,132 2,325 Publication papers, 7,090 7,530 1,000 t Fine and speciality 3,551 3,859 papers, 1,000 t Paper deliveries 10,641 11,389 total, 1,000 t Plywood, 1,000 m3 806 945 Quarterly segment information EUR million Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ 08 08 08 08 07 07 07 07 Sales by segment Energy 141 129 103 105 112 89 81 97 Pulp 200 228 247 269 187 208 208 205 Forest and timber 419 475 518 508 537 490 514 498 Paper 1,750 1,761 1,727 1,773 1,864 1,856 1,815 1,793 Label 233 239 245 242 242 245 255 256 Plywood 102 121 150 157 154 126 150 161 Other operations 34 52 66 48 80 83 160 127 Internal sales -564 -647 -678 -692 -664 -630 -646 -618 Sales, total 2,315 2,358 2,378 2,410 2,512 2,467 2,537 2,519 Internal sales Energy 84 84 83 90 87 79 73 81 Pulp 194 211 229 247 179 198 199 197 Forest and timber 220 278 278 275 284 248 237 249 Paper 49 62 70 69 65 59 59 64 Label - 1 1 1 - - 1 - Plywood 8 10 11 10 11 8 9 8 Other operations 9 1 6 - 38 38 68 19 Internal sales, total 564 647 678 692 664 630 646 618 EBITDA by segment Energy 76 58 34 39 43 24 20 31 Pulp 9 38 35 57 19 50 57 62 Forest and timber -52 -4 4 4 33 22 53 51 Paper 189 271 216 209 221 240 248 230 Label -1 9 15 11 16 19 23 27 Plywood -5 3 22 26 20 8 20 23 Other operations -38 3 -13 -9 -1 3 -10 -6 EBITDA, total 178 378 313 337 351 366 411 418 Operating profit (loss) by segment Energy 62 49 31 33 38 17 11 29 Pulp -76 60 38 67 9 56 11 69 Forest and timber -63 -38 17 25 60 38 61 42 Paper -126 -114 60 51 -19 73 -249 58 Label -38 1 8 3 12 12 16 20 Plywood -10 -2 19 21 15 3 15 17 Other operations -35 4 -16 -7 27 -4 60 -14 Operating profit -286 -40 157 193 142 195 -75 221 (loss), total % of sales -12.4 -1.7 6.6 8.0 5.7 7.9 -3.0 8.8 Special items by segment Energy - - - - - - - - Pulp -59 - - - - - -43 - Forest and timber -2 -33 - -1 -13 - - - Paper -153 -227 - 1 -71 - -328 - Label -28 - - - 4 - - - Plywood - - 3 - - - - - Other operations 2 4 -1 5 28 - 71 - Special items, total -240 -256 2 5 -52 - -300 - Operating profit (loss) excl.special items by segment Energy 62 49 31 33 38 17 11 29 Pulp -17 60 38 67 9 56 54 69 Forest and timber -61 -5 17 26 73 38 61 42 Paper 27 113 60 50 52 73 79 58 Label -10 1 8 3 8 12 16 20 Plywood -10 -2 16 21 15 3 15 17 Other operations -37 - -15 -12 -1 -4 -11 -14 Operating profit -46 216 155 188 194 195 225 221 (loss) excl. special items, total % of sales -2.0 9.2 6.5 7.8 7.7 7.9 8.9 8.8 EUR million Q1-Q4 /Q1-Q4 / 08 07 Sales by segment Energy 478 379 Pulp 944 808 Forest and timber 1,920 2,039 Paper 7,011 7,328 Label 959 998 Plywood 530 591 Other operations 200 450 Internal sales -2,581 -2,558 Sales, total 9,461 10,035 Internal sales Energy 341 320 Pulp 881 773 Forest and timber 1,051 1,018 Paper 250 247 Label 3 1 Plywood 39 36 Other operations 16 163 Internal sales, total 2,581 2,558 EBITDA by segment Energy 207 118 Pulp 139 188 Forest and timber -48 159 Paper 885 939 Label 34 85 Plywood 46 71 Other operations -57 -14 EBITDA, total 1,206 1,546 Operating profit (loss) by segment Energy 175 95 Pulp 89 145 Forest and timber -59 201 Paper -129 -137 Label -26 60 Plywood 28 50 Other operations -54 69 Operating profit 24 483 (loss), total % of sales 0.3 4.8 Special items by segment Energy - - Pulp -59 -43 Forest and timber -36 -13 Paper -379 -399 Label -28 4 Plywood 3 - Other operations 10 99 Special items, total -489 -352 Operating profit(loss) excl.special items by segment Energy 175 95 Pulp 148 188 Forest and timber -23 214 Paper 250 262 Label 2 56 Plywood 25 50 Other operations -64 -30 Operating profit (loss) 513 835 excl. special items, total % of sales 5.4 8.3 Changes in property, plant and equipment EUR million Q1-Q4/Q1-Q4/ 2008 2007 Book value at 6,179 6,500 beginning of period Capital expenditure 471 644 Decreases -24 -96 Depreciation -748 -752 Impairment charges -182 -42 Impairment reversal - 12 Translation -8 -87 difference and other changes Book value at end 5,688 6,179 of period Commitments and contingencies EUR million 31.12.2008 31.12.2007 Own commitments Mortgages 1) 787 90 On behalf of associated companies and joint ventures Guarantees for loans 10 10 On behalf of others Other guarantees 2 3 Other own commitments Leasing commitments 17 21 for the next 12 months Leasing commitments 56 99 for subsequent periods Other commitments 62 70 1) The increase in mortgages relates mainly to giving mandatory security for borrowing from Finnish pension insurance companies. Capital commitments EUR million Completion Total cost By Q1-Q4/ After 31.12.2007 2008 31.12.2008 Rebuild of October 2010 30 - 1 29 debarking plant, Wisaforest Waste water September 2010 17 - - 17 treatment plant, Blandin New Bioboiler, May 2009 75 11 48 16 Caledonian Efficiency September 2009 9 - - 9 improvement, Chudovo Gas usage August2009 9 - 2 7 reduction, Schwedt Notional amounts of derivative financial instruments EUR million 31.12.2008 31.12.2007 Currency derivatives Forward contracts 4,598 4,369 Options, bought - 50 Options, written - 60 Swaps 508 529 Interest rate derivatives Forward contracts 2,668 3,642 Swaps 2,833 2,383 Other derivatives Forward contracts 172 12 Options, written 78 - Swaps 8 3 Related party (associated companies and joint ventures) transactions and balances EUR million Q1-Q4/Q1-Q4/ 2008 2007 Sales to associated 138 130 companies Purchases from 592 500 associated companies Trade and other 37 29 receivables at end of period Trade and other 27 42 payables at end of period Key exchange rates for the euro at end of period 31.12.2008 30.09.2008 30.06.2008 31.03.2008 31.12.2007 USD 1.3917 1.4303 1.5764 1.5812 1.4721 CAD 1.6998 1.4961 1.5942 1.6226 1.4449 JPY 126.14 150.47 166.44 157.37 164.93 GBP 0.9525 0.7903 0.7923 0.7958 0.7334 SEK 10.8700 9.7943 9.4703 9.3970 9.4415 30.09.2007 30.06.2007 31.03.2007 USD 1.4179 1.3505 1.3318 CAD 1.4122 1.4245 1.5366 JPY 163.55 166.63 157.32 GBP 0.6968 0.6740 0.6798 SEK 9.2147 9.2525 9.3462 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 2007. The Group has adopted the following standard: IFRS 8 Operating Segments was early adopted from 1 January 2008. IFRS 8 replaces IAS 14 Segment Reporting and aligns segment reporting with the requirements of the US GAAP standard SFAS 131. The new standard requires the ‘management approach' to reporting on the financial performance of operating segments. The information to be reported for each segment is to be the measure what chief operating decision maker uses internally for evaluating segment performance and deciding how to allocate resources to operating segments. The adoption of IFRS 8 does not have a material impact on the Group's financial statements, since the Group has already reported segment information in a manner consistent with the internal reporting. UPM's new business structure As of 1 December 2008, UPM has been applying its new business structure. Under the new business structure, UPM reports financial information for the following segments: Energy, Pulp, Forest and timber, Paper, Label, Plywood and Other operations. Comparative segment information has been revised accordingly. Calculation of key indicators Return on equity, %: (Profit before tax - income taxes) / Total equity (average) x 100 Return on capital employed, %: (Profit before tax + interest expenses and other financial expenses) / (Total equity + interest-bearing liabilities (average)) x 100 Earnings per share: Profit for the period attributable to equity holders of the parent company / Adjusted average number of shares during the period excluding treasury shares UPM-Kymmene Corporation Pirkko Harrela Executive Vice President, Corporate Communications DISTRIBUTION NASDAQ OMX Helsinki Ltd Main media www.upm-kymmene.com 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 68-70 of the company's annual report 2007. |
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