UPM-Kymmene Corporation Interim Report 24 July 2008 at 09:30
Earnings per share for the second quarter were EUR 0.18 (EUR -0.38 for the
second quarter of 2007), excluding special items EUR 0.17 (0.28). Operating
profit was EUR 157 million (a loss of 75 million), excluding special
items EUR 155 million (225 million). Increase of overall costs for the full
year is still expected to be about 2%.
Key figures
Q2/ Q2/ Q1-Q2/ Q1-Q2/ Q1-Q4/
08 07 08 07 07
Sales, EUR million 2,378 2,537 4,788 5,056 10,035
EBITDA, EUR million 313 411 650 829 1,546
1)
% of sales 13.2 16.2 13.6 16.4 15.4
Operating profit, 157 -75 350 146 483
EUR million
excluding special 155 225 343 446 835
items, EUR million
Profit before tax, 115 -121 249 56 292
EUR million
excluding special 113 179 242 356 644
items, EUR million
Net profit for the 90 -198 193 -67 81
period, EUR million
Earnings per share, 0.18 -0.38 0.38 -0.13 0.16
EUR
excluding special 0.17 0.28 0.36 0.53 1.00
items, EUR
Diluted earnings 0.18 -0.38 0.38 -0.13 0.16
per share, EUR
Return on equity,% 5.5 neg. 5.8 neg. 1.2
excluding special 5.4 8.5 5.6 7.9 7.4
items, %
Return on capital 5.8 neg. 6.2 2.8 4.3
employed, %
excluding special 5.7 8.3 6.0 8.1 7.4
items, %
Gearing ratio at 68 58 68 58 59
end of period, %
Shareholders' 12.64 13.11 12.64 13.11 13.21
equity per share
at end of period,EUR
Net interest-bearing 4,479 4,015 4,479 4,015 3,973
liabilities at end
of period, EUR million
Capital employed at 11,260 11,120 11,260 11,120 11,098
end of period, EUR
million
Capital expenditure, 137 160 274 353 708
EUR million
Personnel at end 27,059 29,344 27,059 29,344 26,352
of period
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets, the share of
results of associated companies and joint ventures, and special items.
Results
Q2 of 2008 compared with Q2 of 2007
Sales for the second quarter of 2008 were EUR 2,378 million (2,537 million).
Paper deliveries decreased by 6% and deliveries of wood products by 5%.
Operating profit was EUR 157 million, 6.6% of sales (loss of EUR 75 million,
-3.0% of sales). Excluding special items, operating profit declined to EUR 155
million, 6.5% of sales (225 million, 8.9% of sales). Last year, there were
special items of EUR -300 million, net, including EUR 350 million of goodwill
impairments.
The decrease of operating profit excluding special items was caused mainly by
higher costs and significantly lower timber prices. Wood and recovered paper
costs increased considerably in the latter part of last year, and the high
level has persisted. Euro on average has strengthened 17% against GBP and 16%
against USD. Translated into euros, the average paper prices were slightly
higher than last year. Efficiency improvements in paper-making and the higher
average paper prices did not compensate for the cost increases.
Increase in the fair value of biological assets, net of wood harvested, was EUR
20 million (14 million). The share of results of associated companies and joint
ventures was EUR 21 million (6 million).
Profit before tax was EUR 115 million (loss of 121 million). Excluding special
items, profit before tax was EUR 113 million (179 million). Interest and other
finance costs, net, were EUR 43 million (54 million). Exchange rate and
fair value gains and losses resulted in a loss of EUR 1 million (gain of 8
million).
Income taxes were EUR 25 million (77 million).
Profit for the second quarter was EUR 90 million (loss of 198 million).
Earnings per share were EUR 0.18 (-0.38) and excluding special items EUR 0.17
(0.28).
January-June of 2008 compared with January-June of 2007
Sales for January-June were EUR 4,788 million, 5% lower than the EUR 5,056
million in the same period in 2007. Operating profit came to EUR 350 million,
7.3% of sales (146 million, 2.9% of sales) and excluding special items EUR 343
million, 7.2% of sales (446 million, 8.8% of sales).
Sales decreased largely because of the divestment of Walki Wisa industrial
wrappings business in 2007, the stronger euro, and lower delivery volumes. Both
GBP and USD have depreciated 15% against the euro, affecting sales and
profitability.
The increase in costs from those of the first half 2007 was about 3%. However,
the costs remained almost unchanged from the second half of last year. The
operating profit decline was mainly caused by the increase in wood costs.
Recovered paper, purchased electricity and fuel prices were also higher than
last year.
Delivery volumes of the paper divisions decreased by 3%. The Miramichi magazine
paper mill in Canada was closed last year. Production was curtailed in the
Newsprint and Fine and Speciality Paper Divisions. However, the efficiency of
paper production improved. Average paper prices in euros were about the same as
last year.
Label Division profitability continued to be weak, as prices were lower and
costs higher.
Further weakening of timber market led to lower prices which combined with the
increased wood costs caused the decrease of Wood Products' profitability.
In Other Operations, the Energy Department in Finland improved its
profitability, benefiting from good availability of hydropower and increased
electricity market price.
The increase in the fair value of biological assets net of wood harvested was
EUR 48 million (11 million). The share of results of associated companies and
joint ventures was EUR 43 million (27 million). The improvement was achieved as
the new pulp mill of the associated company Metsä-Botnia was started up in
Uruguay in the last quarter of 2007.
Profit before tax was EUR 249 million (56 million) and excluding special items
EUR 242 million (356 million). Interest and other finance costs, net, were EUR
92 million (103 million). Exchange rate and fair value gains and losses
resulted in a loss of EUR 11 million (gain of 11 million).
Income taxes were EUR 56 million (123 million), and the effective tax rate
excluding the impact of special items was 23% (24%).
Profit for the period was EUR 193 million (loss of 67 million). Earnings per
share were EUR 0.38 (-0.13), and excluding special items EUR 0.36 (0.53).
Operating cash flow per share was EUR 0.19 (0.75).
Paper deliveries
Paper deliveries for the first six months amounted to 5,425,000 tonnes
(5,585,000). Magazine paper deliveries totalled 2,243,000 tonnes (2,344,000),
newsprint 1,278,000 tonnes (1,313,000), and fine and speciality papers
1,904,000 tonnes (1,928,000).
Financing
In January-June, cash flow from operating activities, before capital
expenditure and financing, was EUR 96 million (392 million). The increase in
working capital amounted to EUR 245 million (207 million), of which about half
is attributable to wood procurement operations. The cash flow was affected by
cash contribution in the UK pension plans, and settlement of the restructuring
provisions related to the closure of the Miramichi paper mill in 2007.
As of 30 June, the gearing ratio was 68% (58% as of 30 June 2007). Equity to
assets ratio on 30 June was 47.4% (50.0%). Net interest-bearing liabilities at
the end of the period were EUR 4,479 million (4,015 million).
Personnel
In January-June, UPM had an average of 26,274 employees (28,966 employees for
the same period last year). The number of employees at the end of June was
27,059 (29,344).
Capital expenditure
For the first half of the year, gross capital expenditure was EUR 274 million,
5.7% of sales (353 million, 7.0% of sales).
The rebuild of the recovery plant at the Kymi pulp mill was completed in June.
The new plant improves energy self-sufficiency and efficiency of the mill. In
addition, CO2 and other emissions are reduced. The total cost of the project is
estimated to amount to EUR 345 million.
The project to improve the paper quality of Jämsänkoski PM5 was completed in
June.
In April, UPM announced a EUR 12 million investment to build a wood plastic
composite mill in Germany. The mill is scheduled to start production at the end
of the year and will employ about 50 people.
The largest ongoing investment, of EUR 90 million, is to build a new
self-adhesive label materials factory in Poland. The project is scheduled for
start-up in the last quarter of 2008.
In April 2008, UPM signed an agreement to form a joint venture company to build
a forest industry facility in the Vologda region of Northwest Russia. The
planned industrial complex would include a modern pulp mill, a sawmill, and an
OSB building panels mill. Providing the project proceeds as planned, decisions
on the pulp mill investment will be considered earliest in 2009.
Profitability improvement
In March 2006, UPM announced an extensive programme for 2006-2008 to restore
its profitability. The profitability programme includes a reduction of
approximately 3,600 employees over its three-year span and closures of
uncompetitive paper production capacity. When finalised, the programme is
estimated to result in annual cost savings of approximately EUR 200 million.
By the end of June, reduction in the number of personnel as a result of actions
under the profitability programme was approximately 3,400. Cost savings from
the profitability programme have materialised as planned. In 2008 cost savings
are estimated to be EUR 150 million comparing to the cost level of 2006.
As a result of continuing cost competitiveness review UPM announced further
actions in December 2007 that included closure of Miramichi magazine paper mill
in Canada and temporary shutdowns of newsprint and fine and speciality paper
capacity. The annualised cost savings are estimated to be EUR 50 to EUR 70
million.
Shares
UPM shares worth, in total, EUR 5,326 million were traded on the OMX Nordic
Exchange Helsinki (8,615 million) during January-June. The highest quotation
was EUR 13.87, in January, and the lowest EUR 10.00, in June.
The Annual General Meeting held on 26 March 2008 approved a proposal to
authorise the Board of Directors to decide to buy back not more than 51,000,000
own shares. The authorisation is valid for 18 months from the date of the
decision. As of the end of June, this authorisation has not been exercised.
On the basis of the decisions of the Annual General Meeting of 27 March 2007,
the Board has the authority to decide on a free issue of shares to the company
itself so that the total number of shares to be issued to the company combined
with the number of own shares bought back under the buyback authorisation may
not exceed 1/10 of the total number of shares of the company. In addition, the
Board has the authority to decide to issue shares and special rights entitling
the holder to shares of the company. The number of new shares to be issued,
including shares to be obtained under special rights, shall be no more than
250,000,000. Of that, the maximum number that may be issued to the company's
shareholders based on their pre-emptive rights is 250,000,000 shares and the
maximum amount that can be issued deviating from the shareholders' pre-emptive
rights in a directed share issue is 100,000,000 shares. The maximum number of
new shares to be issued as part of the company's incentive programmes is
5,000,000 shares. Furthermore, the Board is authorised to decide on the
disposal of own shares. These authorisations of the 2007 Annual General Meeting
will remain valid for no more than three years from the date of the decision.
To date this authorisation has not been exercised.
In the second quarter of 2008, 7,375,768 shares were subscribed for through
exercising of outstanding share options. The number of shares entered in the
Trade Register as of 30 June 2008 was 519,968,088. Through the issuance
authorisation and share options, the number of shares may increase to a maximum
of 793,966,088.
Apart from the above, the Board of Directors has no current authorisation to
issue shares, convertible bonds or share options.
Litigation
Certain competition authorities are continuing investigations into alleged
antitrust activities with respect to various products of the company. The US
Department of Justice, the EU authorities and the authorities in several EU
Member States, Canada, and certain other countries have granted UPM conditional
full immunity with respect to certain conduct disclosed to them. The US and
Canadian investigations are closed, and the European Commission has tentatively
closed its investigation of the European fine paper, newsprint, magazine paper,
label paper, and selfadhesive labelstock markets.
UPM has been named as a defendant in multiple class-action lawsuits against
labelstock and magazine paper manufacturers in the United States. UPM has
agreed to settle the class-action lawsuits raised by direct purchasers of
labelstock and magazine paper. Certain class-action lawsuits filed by indirect
purchasers of labelstock and magazine paper continue to be pending.
The remaining litigation matters may last several years. No material provisions
have been made in relation to these investigations.
Events after the balance sheet date
The Group's management is not aware of any significant events occurring after
30 June 2008.
Risk factors
If implemented, the third increase in the export duty on Russian wood from
the beginning of 2009 will make imports of roundwood uneconomical. There
is a high risk that these imports cannot be fully replaced in a financially
sound manner. The uncertainty about the final outcome will reduce imports from
Russia during the latter part of this year. This could result in reduction of
production at some of the Finnish mills in the second half of 2008.
Outlook for the second half of 2008
Paper demand in Europe is expected to be about the same or slightly lower than
last year. In North America, weakening demand trend is expected to continue.
Growth in demand will continue in China.
UPM's paper deliveries for the second half of the year are expected to be
slightly above the first half of the year. For the second half of the year the
Group's average paper price in euro is expected to be slightly higher than that
of the first half of 2008. This is mainly due to price increases achieved in
magazine papers.
Market demand for self-adhesive labelstock is forecast to grow in Europe and
Asia, although at a lower pace, but in North America no growth is expected.
Self-adhesive labelstock prices in local currencies are expected to increase
from the first half in all main markets.
In wood products, market balance is expected to soften somewhat both in birch
and spruce plywood. In sawn timber, weak market continues especially in
whitewood. These combined with high cost of wood raw material, profitability
will decline further.
Wood fibre costs are expected to stay at current high level. However, due to
cost savings from the ongoing profitability actions, an increase in the
company's overall costs for the full year is still expected to be about 2%.
Demand outlook of UPM's businesses for the second half of the year has weakened
since the beginning of the year and UPM's operative profitability for the full
year 2008 is estimated to be lower than that of last year.
Divisional reviews
Magazine Papers
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/
08 08 07 07 07 07 08 07 07
Sales, EUR million 767 781 811 847 798 793 1,548 1,591 3,249
EBITDA, EUR million 125 120 98 116 114 113 245 227 441
1)
% of sales 16.3 15.4 12.1 13.7 14.3 14.2 15.8 14.3 13.6
Depreciation, -77 -76 -83 -82 -443 -86 -153 -529 -694
amortisation and
impairment charges,
EUR million
Operating profit, 49 44 -62 34 -339 27 93 -312 -340
EUR million
% of sales 6.4 5.6 -7.6 4.0 -42.5 3.4 6.0 -19.6 -10.5
Special items, EUR 1 - -77 - -371 - 1 -371 -448
million 2)
Operating profit 48 44 15 34 32 27 92 59 108
excl. special
items, EUR million
% of sales 6.3 5.6 1.8 4.0 4.0 3.4 5.9 3.7 3.3
Deliveries, 1,000t 1,107 1,136 1,238 1,266 1,189 1,155 2,243 2,344 4,848
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) Special items for the second quarter of 2007 include a goodwill impairment
charge of EUR 350 million, an impairment charge of EUR 22 million and personnel
costs of EUR 10 million related to the Miramichi paper mill, and an income of
EUR 11 million related to impairment reversals. For the fourth quarter, special
items include personnel expenses of EUR 44 million and other costs of EUR 36
million related to the Miramichi paper mill, and an income of EUR 3 million
related to other restructuring measures.
Q2 of 2008 compared with Q2 of 2007
Operating profit, excluding special items, for Magazine Papers improved to EUR
48 million (32 million). Sales were EUR 767 million (798 million). Paper
deliveries decreased by 7% to 1,107,000 tonnes (1,189,000).
The average price for all magazine paper deliveries increased by about 6% in
local currencies, and when translated into euros by about 2%.
January-June 2008 compared with January-June 2007
Operating profit, excluding special items, for Magazine Papers was EUR 92
million (59 million). Sales were EUR 1,548 million (1,591 million). Paper
deliveries declined by 4% to 2,243,000 tonnes (2,344,000). The production of
the Miramichi paper mill was stopped in August 2007.
Profitability of the division improved. Lower fixed costs balanced the rise in
variable costs, mainly those of fibre and energy. Magazine paper prices in
local currencies increased in all main markets. Price increases more than
compensated for adverse currency effects, with the exception of GBP. The
average price for all magazine paper deliveries translated into euros,
increased slightly from last year's level.
Market review
In the first half of the year, magazine paper demand in Europe continued to be
good. Demand grew by about 3% for coated magazine paper, and by about 7% for
uncoated magazine paper. North American demand for magazine papers weakened
clearly toward the end of the period. As a result, in the first half of the
year, coated magazine paper demand declined by about 4%, whilst uncoated
magazine paper demand is estimated to have increased by 2%. The average market
price for magazine papers in Europe increased by about 3% in local currencies
from last year's level. In North America, USD prices increased by about 20%.
Market prices increased across all markets, in local currencies.
Newsprint
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/
08 08 07 07 07 07 08 07 07
Sales, EUR million 332 332 378 365 379 348 664 727 1,470
EBITDA, EUR million 57 60 79 91 100 92 117 192 362
1)
% of sales 17.2 18.1 20.9 24.9 26.4 26.4 17.6 26.4 24.6
Depreciation, -46 -46 -48 -47 -47 -48 -92 -95 -190
amortisation and
impairment charges,
EUR million
Operating profit, 11 15 36 44 53 44 26 97 177
EUR million
% of sales 3.3 4.5 9.5 12.1 14.0 12.6 3.9 13.3 12.0
Special items, EUR - 1 5 - - - 1 - 5
million 2)
Operating profit 11 14 31 44 53 44 25 97 172
excl. special
items, EUR million
% of sales 3.3 4.2 8.2 12.1 14.0 12.6 3.8 13.3 11.7
Deliveries, 1,000t 642 636 702 667 683 630 1,278 1,313 2,682
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) Special items for the fourth quarter of 2007 include an income of EUR 5
million related to restructuring measures.
Q2 of 2008 compared with Q2 of 2007
Operating profit, excluding special items, for Newsprint decreased to EUR 11
million (53 million). Sales were EUR 332 million (379 million). Paper
deliveries decreased by 6% to 642,000 tonnes (683,000).
The average price for all newsprint deliveries when translated into euros was
about 6% lower than in the corresponding period in 2007.
January-June 2008 compared with January-June 2007
Operating profit, excluding special items, for Newsprint decreased to EUR 25
million (97 million). Sales were EUR 664 million (727 million). Paper
deliveries decreased by 3% to 1,278,000 tonnes (1,313,000). In February,
Kajaani PM4 (annual capacity of 250,000 tonnes) was temporarily closed for 10
months.
The most important reasons for the weakened profitability were lower paper
prices in Europe and the strength of the euro, especially against GBP. The
average price for all newsprint deliveries when translated into euros was about
6% lower than in the corresponding period in 2007. Also, fibre and energy costs
increased from last year, but they were partly compensated for by lower fixed
costs.
Market review
In Europe, demand for standard and improved newsprint decreased by about 4%
from the first half of last year. The average market price for standard
newsprint in Europe was about 6% lower than last year. In North America,
average prices of newsprint increased, but demand continued to decrease. In the
other markets, especially in Asia, prices increased clearly, as lower exports
from China tightened the market balance.
Fine and Speciality Papers
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/
08 08 07 07 07 07 08 07 07
Sales, EUR million 686 726 718 694 686 699 1,412 1,385 2,797
EBITDA, EUR million 71 84 66 82 92 85 155 177 325
1)
% of sales 10.3 11.6 9.2 11.8 13.4 12.2 11.0 12.8 11.6
Depreciation, -53 -53 -54 -53 -53 -53 -106 -106 -213
amortisation and
impairment charges,
EUR million
Operating profit, 18 31 12 29 39 32 49 71 112
EUR million
% of sales 2.6 4.3 1.7 4.2 5.7 4.6 3.5 5.1 4.0
Special items, EUR - - - - - - - - -
million
Operating profit 18 31 12 29 39 32 49 71 112
excl. special
items, EUR million
% of sales 2.6 4.3 1.7 4.2 5.7 4.6 3.5 5.1 4.0
Deliveries, 1,000t 923 981 977 954 960 968 1,904 1,928 3,859
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
Q2 of 2008 compared with Q2 of 2007
Operating profit, excluding special items, for Fine and Speciality Papers was
EUR 18 million (39 million). Sales were EUR 686 million (686 million). Paper
deliveries totalled 923,000 tonnes (960,000).
The Kymi paper mill was stopped for six days in May for the final integration
of the new chemical recovery island with the process. Furthermore, the division
curtailed production at the Nordland paper mill.
The average price for all fine and speciality paper deliveries when translated
into euros was about 3% higher than a year ago.
January-June 2008 compared with January-June 2007
Operating profit, excluding special items, for Fine and Speciality Papers
decreased from EUR 71 million to EUR 49 million. Sales increased from EUR 1,385
million to 1,412 million. Paper deliveries came to 1,904,000 tonnes
(1,928,000).
The profitability of the division weakened from last year's level. Wood and
pulp costs were markedly higher than last year. These were partly offset by
improved efficiency and about 2% higher average paper prices.
Market review
In Europe, demand for coated fine paper weakened toward the end of the period.
As a result, demand during the first six months decreased by about 2% from last
year's level. Demand for uncoated fine paper decreased by about 3%. In Europe,
the average market price for coated fine paper was about 5% lower than last
year, and the average price for uncoated fine paper was approximately at last
year's level. In Asia, demand and prices for fine paper showed a clear increase
from last year. Good demand for label and packaging papers continued.
Label Materials
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/
08 08 07 07 07 07 08 07 07
Sales, EUR million 252 249 249 252 260 261 501 521 1,022
EBITDA, EUR million 14 9 15 18 21 26 23 47 80
1)
% of sales 5.6 3.6 6.0 7.1 8.1 10.0 4.6 9.0 7.8
Depreciation, -8 -9 -9 -8 -8 -8 -17 -16 -33
amortisation and
impairment charges,
EUR million
Operating profit, 6 0 10 10 13 18 6 31 51
EUR million
% of sales 2.4 0.0 4.0 4.0 5.0 6.9 1.2 6.0 5.0
Special items, EUR - - 4 - - - - - 4
million 2)
Operating profit 6 0 6 10 13 18 6 31 47
excl. special
items, EUR million
% of sales 2.4 0.0 2.4 4.0 5.0 6.9 1.2 6.0 4.6
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) Special items in the fourth quarter of 2007 include an income of EUR 4
million related to restructuring measures.
Q2 of 2008 compared with Q2 of 2007
Operating profit, excluding special items, for Label Materials was EUR 6
million (13 million). Sales decreased to EUR 252 million (260 million).
Delivery volumes grew in all main markets from the same period last year.
January-June 2008 compared with January-June 2007
Operating profit, excluding special items, for Label Materials was EUR 6
million (31 million). Sales decreased by 4% to EUR 501 million (521 million),
because of the strengthened euro, lower prices, and changes in market mix.
Labelstock delivery volumes grew in all main markets, and the strong growth in
RFID delivery volumes continued.
The profitability of the division weakened. The main reasons were the
strengthened euro and lower prices in invoicing currencies, together with
higher raw material costs.
The price increases announced in the first quarter of 2008 improved average
prices during the second quarter of 2008. The division has launched an internal
profitability improvement programme.
Market review
Because of the weak US economy and consumer demand, label material demand in
North America is estimated to have decreased slightly during the first six
months of the year. In Europe, demand is estimated to have continued to grow,
although at a slower pace than last year. In Asia, the solid growth in demand
continued, even though the growth rate was slightly lower in some areas than it
was last year.
Wood Products
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/
08 08 07 07 07 07 08 07 07
Sales, EUR million 293 298 297 262 326 314 591 640 1,199
EBITDA, EUR million 13 19 26 8 51 42 32 93 127
1)
% of sales 4.4 6.4 8.8 3.1 15.6 13.4 5.4 14.5 10.6
Depreciation, -10 -11 -11 -10 -11 -10 -21 -21 -42
amortisation and
impairment charges,
EUR million
Operating profit, 6 8 21 -2 41 32 14 73 92
EUR million
% of sales 2.0 2.7 7.1 -0.8 12.6 10.2 2.4 11.4 7.7
Special items, EUR 3 - 6 - - - 3 - 6
million 2)
Operating profit 3 8 15 -2 41 32 11 73 86
excl. special
items, EUR million
% of sales 1.0 2.7 5.1 -0.8 12.6 10.2 1.9 11.4 7.2
Deliveries, plywood 236 241 239 204 247 255 477 502 945
1,000 m3
Deliveries, sawn 601 560 520 480 637 587 1,161 1,224 2,224
timber 1,000 m3
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) Special items in the second quarter of 2008 include reversals of provisions
related to the Kuopio plywood mill disposed in June. In the fourth quarter of
2007, special items include a gain of EUR 6 million on sale of estate assets.
Q2 of 2008 compared with Q2 of 2007
Operating profit, excluding special items, for Wood Products decreased from EUR
41 million to EUR 3 million. Sales decreased by 10% to EUR 293 million (326
million). Plywood deliveries totalled 236,000 cubic metres (247,000) and sawn
timber deliveries 601,000 cubic metres (637,000).
Luumäki operations were closed down in June. On 12 June, UPM announced that it
will start negotiations with employees on the possible closure of the
Leivonmäki sawmill in Finland.
January-June 2008 compared with January-June 2007
Operating profit, excluding special items, for Wood Products decreased from EUR
73 million to EUR 11 million. Sales decreased by 8% to EUR 591 million (640
million). Plywood deliveries totalled 477,000 cubic metres (502,000) and sawn
timber deliveries 1,161,000 cubic metres (1,224,000).
The profitability of the division weakened materially, as sawn timber prices
declined and wood costs remained at a high level. Sawn timber production was
curtailed during the period under review. The good profitability of plywood
continued. The supply of logs improved slightly toward the end of the period.
Market review
In the first half of the year, plywood demand remained stable in Europe,
although it showed some weakening toward the end of the period. Plywood market
prices were higher than a year ago. The market balance for sawn timber weakened
substantially. Demand for both redwood and whitewood sawn timber weakened,
while supply in Europe increased, leading to significant price reductions.
Other Operations
Em Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/
08 08 07 07 07 07 08 07 07
Sales 1) 194 168 188 173 214 234 362 448 809
EBITDA 2) 33 45 67 51 32 60 78 92 210
Depreciation, -5 -4 -31 -6 -5 -10 -9 -15 -52
amortisation and
impairment charges
Operating profit
Forestry 31 37 61 43 34 28 68 62 166
Energy Department, 32 38 42 23 19 28 70 47 112
Finland
Other and -17 -2 20 - 59 -9 -19 50 70
eliminations
Operating profit, 46 73 123 66 112 47 119 159 348
total
Special items 3) -2 4 10 - 71 - 2 71 81
Operating profit, 48 69 113 66 41 47 117 88 267
excluding special items
1) Includes sales outside the Group.
2) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and special items.
3) Special items for the first quarter of 2008 include adjustment to sales of
disposals in 2007. Special items for the second quarter of 2007 include capital
gains of EUR 42 million related to the sale of UPM-Asunnot and EUR 29 million
related to the sale of Walki Wisa. In the fourth quarter, special items include
a capital gain of EUR 58 million on the sale of port operators Rauma
Stevedoring and Botnia Shipping, a compensation charge of EUR 12 million
related to class-action lawsuits in the US, impairment charges of EUR 31
million related mainly to Miramichi's forestry and sawmilling operations, and
other restructuring costs of EUR 5 million.
Q2 of 2008 compared with Q2 of 2007
Excluding special items, operating profit for Other Operations was EUR 48
million (41 million). Sales came to EUR 194 million (214 million).
The operating profit of Forestry was EUR 31 million (34 million). The increase
in the fair value of biological assets (growing trees) was EUR 51 million (49
million). The cost of wood raw material harvested from the Group's forests was
EUR 31 million (35 million). The net effect total was EUR 20 million (14
million).
The operating profit of the Energy Department in Finland was EUR 32 million (19
million).
January-June 2008 compared with January-June 2007
Excluding special items, operating profit for Other Operations was EUR 117
million (88 million). Sales were EUR 362 million (448 million).
The operating profit of Forestry was EUR 68 million (62 million). The increase
in the fair value of biological assets net of wood harvested was EUR 48 million
(11 million), including the increase in the value of growing trees of EUR 92
million (72 million) and the cost of wood raw material harvested from own
forests of EUR 44 million (61 million).
The operating profit of the Energy Department in Finland was EUR 70 million (47
million). Hydropower availability was very good, impacting the average cost of
energy generation favourably. The price of electricity at Nord Pool was
significantly higher than in the corresponding period of last year. In Finland,
UPM was a net seller of electricity.
Associated companies and joint ventures
EUR million Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/
08 08 07 07 07 07 08 07 07
Share of result after tax
Oy Metsä-Botnia Ab 20 26 6 19 12 21 46 33 58
Pohjolan Voima Oy -2 -5 -4 -5 -5 - -7 -5 -14
Other 3 1 - - -1 - 4 -1 -1
Total 21 22 2 14 6 21 43 27 43
Deliveries
Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q2/ Q1-Q2/
08 08 07 07 07 07 08 07
Paper deliveries
Magazine papers, 1,107 1,136 1,238 1,266 1,189 1,155 2,243 2,344
1,000 t
Newsprint, 1,000 t 642 636 702 667 683 630 1,278 1,313
Fine and speciality 923 981 977 954 960 968 1,904 1,928
papers, 1,000 t
Paper deliveries 2,672 2,753 2,917 2,887 2,832 2,753 5,425 5,585
total
Wood products deliveries
Plywood, 1,000 m3 236 241 239 204 247 255 477 502
Sawn timber, 1,000 m3 628 573 537 505 666 617 1,201 1,283
Q1-Q4/
07
Paper deliveries
Magazine papers, 4,848
1,000 t
Newsprint, 1,000 t 2,682
Fine and speciality 3,859
papers, 1,000 t
Paper deliveries 11,389
total
Wood products deliveries
Plywood, 1,000 m3 945
Sawn timber, 1,000 m3 2,325
Helsinki, 24 July 2008
UPM-Kymmene Corporation
Board of Directors
This Interim Report is unaudited.
Financial information
Consolidated income statement
EUR million Q2/ Q2/ Q1-Q2/ Q1-Q2/ Q1-Q4/
08 07 08 07 07
Sales 2,378 2,537 4,788 5,056 10,035
Other operating 11 80 51 98 200
income
Costs and expenses -2,074 -2,145 -4,182 -4,264 -8,650
Change in fair value 20 14 48 11 79
of biological assets
and wood harvested
Share of results of 21 6 43 27 43
associated companies
and joint ventures
Depreciation, -199 -567 -398 -782 -1,224
amortisation and
impairment charges
Operating profit 157 -75 350 146 483
Gains on 2 - 2 2 2
available-for-sale
investments, net
Exchange rate and -1 8 -11 11 -2
fair value gains and losses
Interest and other -43 -54 -92 -103 -191
finance costs, net
Profit before tax 115 -121 249 56 292
Income taxes -25 -77 -56 -123 -211
Profit for the period 90 -198 193 -67 81
Attributable to:
Equity holders of 92 -198 194 -67 85
the parent company
Minority interest -2 - -1 - -4
90 -198 193 -67 81
Earnings per share for
profit attributable to the
equity holders of
the parent company
Basic earnings per 0.18 -0.38 0.38 -0.13 0.16
share, EUR
Diluted earnings 0.18 -0.38 0.38 -0.13 0.16
per share, EUR
Condensed consolidated balance sheet
EUR million 30.06.2008 30.06.2007 31.12.2007
ASSETS
Non-current assets
Goodwill 1,163 1,163 1,163
Other intangible assets 425 419 392
Property, plant and equipment 6,007 6,375 6,179
Biological assets 1,138 1,032 1,095
Investments in associated 1,210 1,185 1,193
companies and joint ventures
Deferred tax assets 247 339 284
Other non-current assets 398 252 333
10,588 10,765 10,639
Current assets
Inventories 1,438 1,294 1,342
Trade and other receivables 1,806 1,771 1,735
Cash and cash equivalents 103 104 237
3,347 3,169 3,314
Total assets 13,935 13,934 13,953
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital 890 890 890
Share premium reserve - 825 -
Fair value and other reserves -76 325 35
Reserve for invested 1,145 - 1,067
non-restricted equity
Retained earnings 4,615 4,893 4,778
6,574 6,933 6,770
Minority interest 11 16 13
Total equity 6,585 6,949 6,783
Non-current liabilities
Deferred tax liabilities 743 762 745
Non-current interest-bearing 3,971 3,053 3,384
liabilities
Other non-current liabilities 584 613 624
5,298 4,428 4,753
Current liabilities
Current interest-bearing liabilities 704 1,118 931
Trade and other payables 1,348 1,439 1,486
2,052 2,557 2,417
Total liabilities 7,350 6,985 7,170
Total equity and liabilities 13,935 13,934 13,953
Consolidated statement of changes in equity
Attributable to equity holders of the parent
EUR million Share Share Transl- Fair Reserve
capital premium ation value and for
reserve differ- other invested
ences reserves non-
restricted
equity
Balance at 1 890 826 -89 278 -
January 2007
Translation differences - - 12 - -
Other items - - - -1 -
Net investment hedge, - - - - -
net of tax
Cash flow hedges
fair value - - - 17 -
gains/losses, net of tax
transfers from - - - -16 -
equity, net of tax
Available-for-sale investments
transfers to income - - - -2 -
statement, net of tax
Profit for the period - - - - -
Total recognised income - - 12 -2 -
and expense for the period
Share options exercised - - - 104 -
Share-based compensation, - - - 6 -
net of tax
Dividend paid - - - - -
Transfers and other - -1 - 16 -
Business combinations - - - - -
Total of other changes - -1 - 126 -
in equity
Balance at 30 June 2007 890 825 -77 402 -
Balance at 1 890 - -158 193 1,067
January 2008
Translation differences - - -117 - -
Other items - - - -1 -
Net investment hedge, - - 26 - -
net of tax
Cash flow hedges
fair value - - - 40 -
gains/losses, net of tax
transfers from equity, - - - -40 -
net of tax
Available-for-sale investments
transfers to income - - - - -
statement, net of tax
Profit for the period - - - - -
Total recognised income - - -91 -1 -
and expense for the period
Share options exercised - - - - 78
Share-based - - - -19 -
compensation, net of tax
Dividend paid - - - - -
Business combinations - - - - -
Total of other changes - - - -19 78
in equity
Balance at 30 June 2008 890 - -249 173 1,145
Attributable to equity
holders of the parent
EUR million Retained Total Minority Total
earnings interest equity
Balance at 1 5,366 7,271 18 7,289
January 2007
Translation differences - 12 - 12
Other items 2 1 - 1
Net investment hedge, - - - -
net of tax
Cash flow hedges
fair value - 17 - 17
gains/losses, net of tax
transfers from equity, - -16 - -16
net of tax
Available-for-sale investments
transfers to income - -2 - -2
statement, net of tax
Profit for the period -67 -67 - -67
Total recognised income -65 -55 - -55
and expense for the period
Share options exercised - 104 - 104
Share-based compensation, - 6 - 6
net of tax
Dividend paid -392 -392 - -392
Transfers and other -16 -1 -2 -3
Business combinations - - - -
Total of other changes -408 -283 -2 -285
in equity
Balance at 30 June 2007 4,893 6,933 16 6,949
Balance at 1 4,778 6,770 13 6,783
January 2008
Translation differences - -117 - -117
Other items 6 5 - 5
Net investment hedge, - 26 - 26
net of tax
Cash flow hedges
fair value - 40 - 40
gains/losses, net of tax
transfers from equity, - -40 - -40
net of tax
Available-for-sale investments
transfers to income - - - -
statement, net of tax
Profit for the period 194 194 -1 193
Total recognised income 200 108 -1 107
and expense for the period
Share options exercised - 78 - 78
Share-based compensation, 21 2 - 2
net of tax
Dividend paid -384 -384 - -384
Business combinations - - -1 -1
Total of other changes -363 -304 -1 -305
in equity
Balance at 30 June 2008 4,615 6,574 11 6,585
Condensed consolidated cash flow statement
EUR million Q1-Q2/ Q1-Q2/ Q1-Q4/
08 07 07
Cash flow from operating activities
Profit for the period 193 -67 81
Adjustments, total 351 864 1,390
Change in working -245 -207 -204
capital
Cash generated from 299 590 1,267
operations
Finance costs, net -118 -105 -236
Income taxes paid -85 -93 -164
Net cash from 96 392 867
operating activities
Cash flow from investing activities
Acquisitions and -6 -11 -25
share purchases
Purchases of -310 -359 -673
intangible and
tangible assets
Asset sales and 17 182 273
other investing
cash flow
Net cash used in -299 -188 -425
investing activities
Cash flow from financing activities
Change in loans and 375 -11 152
other financial items
Share options exercised 78 104 104
Dividends paid -384 -392 -392
Purchase of own shares - - -266
Net cash used in 69 -299 -402
financing activities
Change in cash and -134 -95 40
cash equivalents
Cash and cash 237 199 199
equivalents at
beginning of period
Foreign exchange - - -2
effect on cash
Change in cash and -134 -95 40
cash equivalents
Cash and cash 103 104 237
equivalents at end of
period
Operating cash flow 0.19 0.75 1.66
per share, EUR
Quarterly information
EUR million Q2/ Q1/ Q4/ Q3/ Q2/
08 08 07 07 07
Sales by segment
Magazine Papers 767 781 811 847 798
Newsprint 332 332 378 365 379
Fine and Speciality Papers 686 726 718 694 686
Label Materials 252 249 249 252 260
Wood Products 293 298 297 262 326
Other Operations 194 168 188 173 214
Internal sales -146 -144 -129 -126 -126
Sales, total 2,378 2,410 2,512 2,467 2,537
Operating profit by segment
Magazine Papers 49 44 -62 34 -339
Newsprint 11 15 36 44 53
Fine and Speciality Papers 18 31 12 29 39
Label Materials 6 - 10 10 13
Wood Products 6 8 21 -2 41
Other Operations 46 73 123 66 112
Share of results of 21 22 2 14 6
associated companies and
joint ventures
Operating profit 157 193 142 195 -75
(loss), total
% of sales 6.6 8.0 5.7 7.9 -3.0
Gains on 2 - - - -
available-for-sale
investments, net
Exchange rate and fair -1 -10 -4 -9 8
value gains and losses
Interest and other -43 -49 -46 -42 -54
finance costs, net
Profit (loss) before tax 115 134 92 144 -121
Income taxes -25 -31 -63 -25 -77
Profit (loss) for 90 103 29 119 -198
the period
Basic earnings per 0.18 0.20 0.06 0.23 -0.38
share, EUR
Diluted earnings 0.18 0.20 0.06 0.23 -0.38
per share, EUR
Average number of 517,622 512,581 514,085 527,012 527,111
shares, basic (1,000)
Average number of 516,791 513,412 515,322 529,530 530,980
shares, diluted (1,000)
Special items in operating profit
Special items in operating profit are specified in the divisional reviews on
pages 5-8.
Magazine Papers 1 - -77 - -371
Newsprint - 1 5 - -
Fine and Speciality Papers - - - - -
Label Materials - - 4 - -
Wood Products 3 - 6 - -
Other Operations -2 4 10 - 71
Share of results of - - - - -
associated companies and
joint ventures
Special items in 2 5 -52 - -300
operating profit, total
Special items reported - - - - -
after operating profit
Special items reported in - - -39 - -32
taxes
Special items, total 2 5 -91 - -332
Operating profit, 155 188 194 195 225
excl. special items
% of sales 6.5 7.8 7.7 7.9 8.9
Profit before tax, 113 129 144 144 179
excl. special items
% of sales 4.8 5.4 5.7 5.8 7.1
Earnings per share, 0.17 0.19 0.24 0.23 0.28
excl. special items, EUR
Return on equity, 5.4 5.9 7.1 6.9 8.5
excl. special items, %
Return on capital 5.7 6.5 6.9 6.8 8.3
employed, excl. special items, %
EUR million Q1/ Q1-Q2/ Q1-Q2/ Q1-Q4/
07 08 07 07
Sales by segment
Magazine Papers 793 1,548 1,591 3,249
Newsprint 348 664 727 1,470
Fine and Speciality 699 1,412 1,385 2,797
Papers
Label Materials 261 501 521 1,022
Wood Products 314 591 640 1,199
Other Operations 234 362 448 809
Internal sales -130 -290 -256 -511
Sales, total 2,519 4,788 5,056 10,035
Operating profit by segment
Magazine Papers 27 93 -312 -340
Newsprint 44 26 97 177
Fine and Speciality 32 49 71 112
Papers
Label Materials 18 6 31 51
Wood Products 32 14 73 92
Other Operations 47 119 159 348
Share of results of 21 43 27 43
associated companies and
joint ventures
Operating profit 221 350 146 483
(loss), total
% of sales 8.8 7.3 2.9 4.8
Gains on 2 2 2 2
available-for-sale
investments, net
Exchange rate and fair 3 -11 11 -2
value gains and losses
Interest and other -49 -92 -103 -191
finance costs, net
Profit (loss) before tax 177 249 56 292
Income taxes -46 -56 -123 -211
Profit (loss) for 131 193 -67 81
the period
Basic earnings per 0.25 0.38 -0.13 0.16
share, EUR
Diluted earnings 0.25 0.38 -0.13 0.16
per share, EUR
Average number of 523,261 515,102 525,186 522,867
shares, basic (1,000)
Average number of 527,086 515,102 529,033 525,729
shares, diluted (1,000)
Special items in operating profit
Special items in operating profit are specified in the divisional
reviews on pages 5-8.
Magazine Papers - 1 -371 -448
Newsprint - 1 - 5
Fine and Speciality - - - -
Papers
Label Materials - - - 4
Wood Products - 3 - 6
Other Operations - 2 71 81
Share of results of - - - -
associated companies and
joint ventures
Special items in - 7 -300 -352
operating profit, total
Special items reported - - - -
after operating profit
Special items reported - - -32 -71
in taxes
Special items, total - 7 -332 -423
Operating profit, 221 343 446 835
excl. special items
% of sales 8.8 7.2 8.8 8.3
Profit before tax, 177 242 356 644
excl. special items
% of sales 7.0 5.1 7.0 6.4
Earnings per share, 0.25 0.36 0.53 1.00
excl. special items, EUR
Return on equity, 7.3 5.6 7.9 7.4
excl. special items, %
Return on capital 7.9 6.0 8.1 7.4
employed, excl.
special items, %
Changes in property, plant and equipment
EUR million Q1-Q2/ Q1-Q2/ Q1-Q4/
08 07 07
Book value at 6,179 6,500 6,500
beginning of period
Capital expenditure 262 325 644
Decreases -6 -46 -96
Depreciation -365 -381 -752
Impairment charges - -22 -42
Impairment reversal - 11 12
Translation -63 -13 -87
difference and
other changes
Book value at end 6,007 6,374 6,179
of period
Commitments and contingencies
EUR million 30.06.2008 30.06.2007 31.12.2007
Own commitments
Mortgages 89 94 90
On behalf of associated companies and joint ventures
Guarantees for loans 10 11 10
On behalf of others
Other guarantees 3 5 3
Other own commitments
Leasing commitments 23 21 21
for the next 12 months
Leasing commitments 88 90 99
for subsequent periods
Other commitments 65 77 70
Capital commitments
EUR million Completion Total By 31.12. Q1-Q2/ After
cost 2007 2008 30.06.08
Pulp mill rebuild, June 2008 345 226 61 58
Kymi
New Poland mill, Nov. 2008 90 23 38 29
UPM Raflatac
New bioboiler, Sep. 2009 75 11 20 44
Caledonian
Rebuild of Oct. 2010 30 - - 30
debarking plant,
Wisaforest
New wood-plastic Dec. 2008 12 - 2 10
composite mill, Germany
Notional amounts of derivative financial instruments
EUR million 30.06.2008 30.06.2007 31.12.2007
Currency derivatives
Forward contracts 6,621 3,557 4,369
Options, bought 40 37 50
Options, written 45 37 60
Swaps 502 557 529
Interest rate derivatives
Forward contracts 3,511 2,646 3,642
Swaps 2,130 2,496 2,383
Other derivatives
Forward contracts 28 14 12
Swaps 5 8 3
Related party (associated companies and joint ventures) transactions and
balances
EUR million Q1-Q2/ Q1-Q2/ Q1-Q4/
08 07 07
Sales to associated 67 41 130
companies
Purchases from 263 215 500
associated companies
Trade and other 29 19 29
receivables at end of period
Trade and other 22 33 42
payables at end of period
Key exchange rates for the euro at end of period
30.06.2008 31.03.2008 31.12.2007 30.09.2007 30.06.2007 31.03.2007
USD 1.5764 1.5812 1.4721 1.4179 1.3505 1.3318
CAD 1.5942 1.6226 1.4449 1.4122 1.4245 1.5366
JPY 166.44 157.37 164.93 163.55 166.63 157.32
GBP 0.7923 0.7958 0.7334 0.6968 0.6740 0.6798
SEK 9.4703 9.3970 9.4415 9.2147 9.2525 9.3462
Basis of preparation
This unaudited financial report has been prepared in accordance with the
accounting policies set forth in International Accounting Standard 34 on
Interim Financial Reporting and in the Group's Consolidated Financial
Statements for 2007. Income tax expense is recognised based on the best
estimate of the weighted average annual income tax rate expected for the full
financial year.
Calculation of key indicators
Return on equity, %:
Profit before tax - income taxes / Shareholders' equity (average) x 100
Return on capital employed, %:
Profit before tax + interest expenses and other financial expenses /
Equity total + interest-bearing liabilities (average) x 100
Earnings per share:
Profit for the period attributable to equity holders of parent company /
Adjusted average number of shares during the period excluding own shares
It should be noted that certain statements herein, which are not historical
facts, including, without limitation, those regarding expectations for market
growth and developments; expectations for growth and profitability; and
statements preceded by “believes”, “expects”, “anticipates”, “foresees”, or
similar expressions, are forward-looking statements. Since these statements are
based on current plans, estimates and projections, they involve risks and
uncertainties which may cause actual results to materially differ from those
expressed in such forward-looking statements. Such factors include, but are not
limited to: (1) operating factors such as continued success of manufacturing
activities and the achievement of efficiencies therein including the
availability and cost of production inputs, continued success of product
development, acceptance of new products or services by the Group's targeted
customers, success of the existing and future collaboration arrangements,
changes in business strategy or development plans or targets, changes in the
degree of protection created by the Group's patents and other intellectual
property rights, the availability of capital on acceptable terms; (2) industry
conditions, such as strength of product demand, intensity of competition,
prevailing and future global market prices for the Group's products and the
pricing pressures thereto, financial condition of the customers and the
competitors of the Group, the potential introduction of competing products and
technologies by competitors; and (3) general economic conditions, such as rates
of economic growth in the Group's principal geographic markets or fluctuations
in exchange and interest rates. For more detailed information about risk
factors, see pages 68-69 of the company's annual report 2007.
UPM-Kymmene Corporation
Pirkko Harrela
Executive Vice President, Corporate communications
DISTRIBUTION
OMX Nordic Exchange
Main media
www.upm-kymmene.com
UPM, Corporate Communications
Media Desk, tel. +358 40 588 3284
communications@upm-kymmene.com
