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