UPM-Kymmene Corporation Interim report April 24, 2008 at 12:00 (Finnish time)
Earnings per share for the first quarter were EUR 0.20 (0 0.25 for the first
quarter of 2007), excluding special items EUR 0.19 (0.25). Operating profit
was EUR 193 million (221 million), excluding special items EUR 188 million
(221 million). Fibre costs and currencies effected UPM's result.
Key figures
Q1/ Q1/ Q1-Q4/
2008 2007 2007
Sales, EUR million 2,410 2,519 10,035
EBITDA, EUR million 1) 337 418 1,546
% of sales 14.0 16.6 15.4
Operating profit, 193 221 483
EUR million
excluding special 188 221 835
items, EUR million
Profit before tax, 134 177 292
EUR million
excluding special 129 177 644
items, EUR million
Net profit for the 103 131 81
period, EUR million
Earnings per share, 0.20 0.25 0.16
EUR
excluding special 0.19 0.25 1.00
items, EUR
Diluted earnings 0.20 0.25 0.16
per share, EUR
Return on equity, % 6.2 7.3 1.2
excluding special 5.9 7.3 7.4
items, %
Return on capital 6.7 7.9 4.3
employed, %
excluding special 6.5 7.9 7.4
items, %
Gearing ratio at 64 57 59
end of period, %
Shareholders' 12.48 13.38 13.21
equity per share at
end of period, EUR
Net interest-bearing 4,107 4,023 3,973
liabilities at end
of period, EUR million
Capital employed at 10,772 11,330 11,098
end of period, EUR million
Capital expenditure, 137 193 708
EUR million
Personnel at end of 25,841 28,578 26,352
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
Q1 of 2008 compared with Q1 of 2007
Sales for the first quarter of 2008 were EUR 2,410 million, 4% less than the
EUR 2,519 million in the first quarter of 2007. Operating profit was EUR 193
million (221 million), 8.0% (8.8%) of sales. Operating profit excluding special
items was EUR 188 million (221 million).
Sales were unchanged when adjusted for the divested businesses. Delivery
volumes were about the same as last year. The considerably weaker USD and GBP
had an impact on sales and average prices in euros. The operating profit
declined mainly due to the increased cost of wood and recycled fibre and the
strengthened euro.
Delivery volumes of paper divisions remained about the same, despite reduction
in capacity. The average paper price in euros for all paper deliveries remained
about the same as last year. The profitability decreased due to the increased
fibre costs.
Prices for magazine grades improved during the quarter, but were on average
below the first quarter 2007 level. Standard newsprint prices declined and were
5% lower than last year. The average price for fine and speciality papers was
about the same as last year. The profitability of the label business for the
period was weak. Prices were lower and the fixed costs increased. In North
America, weakened economy resulted in contraction of demand.
The profitability of wood products decreased. While good profitability of
plywood business was maintained, the sawmilling business weakened significantly
as prices decreased and cost of wood raw material increased.
The increase in the fair value of biological assets, net of wood harvested, was
EUR 28 million (decrease of EUR 3 million). The share of results of associated
companies and joint ventures was EUR 22 million (21 million).
Profit before tax was EUR 134 million (177 million) and excluding special items
EUR 129 million (177 million). Interest and other finance costs net were EUR 49
million (49 million). Exchange rate and fair value gains and losses, and gains
on available-for-sale investments, resulted in a loss of EUR 10 million (a gain
of EUR 5 million).
Income taxes were EUR 31 million (46 million). The effective tax rate was 23%
(26%).
Profit for the first quarter was EUR 103 million (131 million) and earnings per
share were EUR 0.20 (0.25). Earnings per share excluding special items were EUR
0.19 (0.25). Operating cash flow per share was EUR 0.10 (0.36).
Paper deliveries
Paper deliveries for the first three months were 2,753,000 tonnes, the same as
in 2007. Magazine paper deliveries were 1,136,000 tonnes (1,155,000), newsprint
636,000 tonnes (630,000), and fine and speciality papers 981,000 tonnes
(968,000).
Financing
Cash flow from operating activities, before capital expenditure and financing,
was EUR 50 million (187 million). The cash flow includes cash contribution in
the UK pension plans, and settlement of the restructuring provisions related to
the closure of the Miramichi paper mill in 2007. The increase in working
capital amounted to EUR 106 million (145 million).
The gearing ratio as of 31 March was 64% (57% on 31 March 2007). Equity to
assets ratio on 31 March was 46.2% (48.4%). Net interest-bearing liabilities at
the end of the period increased to EUR 4,107 million (4,023 million).
Personnel
In the first quarter, UPM had an average of 25,971 employees (28,558). At the
beginning of the year, the number of employees was 26,352 and at the end of the
period 25,841. Since the first quarter of last year, the number of personnel
decreased as a result of the measures related to the profitability programme,
closure of the Miramichi paper mill, and divestments of port operators and
Walki Wisa.
Capital expenditure
During the first three months, gross capital expenditure was EUR 137 million,
5.7% of sales (193 million, 7.7% of sales).
The new self-adhesive label materials factory in Dixon, Illinois, in the
USA, started operations in February. The total investment cost was USD 100
million (EUR 70 million).
The largest ongoing investments are the rebuild of the recovery plant at the
Kymi pulp mill, which is scheduled to start up during the second quarter of
2008; the new label materials plant in Poland, scheduled for start-up in the
fourth quarter of 2008; and a biomass boiler in the Caledonian paper mill,
Scotland, that is scheduled to begin operation in 2009.
Shares
In the first quarter of 2008, UPM shares worth, in total, EUR 2,840 million
were traded on the OMX Nordic Exchange Helsinki (4,267 million). The highest
quotation was EUR 13.87 in January and the lowest EUR 10.52 in March.
The Annual General Meeting held on 26 March 2008 approved a proposal to
authorise the Board of Directors to decide to buy back not more than 51,000,000
own shares. The authorisation is valid for 18 months from the date of the
decision.
On the basis of the decisions of the Annual General Meeting of 27 March, 2007,
the Board has the authority to decide on a free issue of shares to the company
itself so that the total number of shares to be issued to the company
combined with the number of own shares bought back under the buyback
authorisation may not exceed 1/10 of the total number of shares of the company.
In addition, the Board has the authority to decide to issue shares and special
rights entitling the holder to shares of the company. The number of new shares
to be issued, including shares to be obtained under special rights, shall be no
more than 250,000,000. Of that, the maximum number that can be issued to the
company's shareholders based on their pre-emptive rights is 250,000,000 shares
and the maximum amount that can be issued deviating from the shareholders'
pre-emptive rights in a directed share issue is 100,000,000 shares. The maximum
number of new shares to be issued as part of the company's incentive programmes
is 5,000,000 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.
In the first quarter of 2008, 23,000 shares were subscribed for through
exercising of outstanding share options. The number of shares entered in the
Trade Register as of 31 March 2008 was 512,592,320. Through the issuance
authorisation and share options, the number of shares may increase to a maximum
of 794,158,420.
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.
Dividend
The Annual General Meeting of 26 March 2008 approved the Board's proposal to
pay a dividend of EUR 0.75 per share for the 2007 financial year. The dividend
of EUR 384 million that was paid on 10 April 2008 is included in short-term
non-interest-bearing liabilities at the end of March.
Company directors
The Annual General Meeting of 26 March 2008 decided that the Board of Directors
is composed of 10 members. Mr Matti Alahuhta, President and CEO of KONE
Corporation, and Mr Björn Wahlroos, President and CEO of Sampo plc, were
elected to the Board of Directors as new members. In addition, Mr Michael C.
Bottenheim, LLM, MBA; Mr Berndt Brunow, Board member of Oy Karl Fazer Ab;
Mr Karl Grotenfelt, LLM, Chairman of the Board of Directors of Famigro Oy;
Dr Georg Holzhey, former Executive Vice President of UPM and Director of G.
Haindl'sche Papierfabriken KGaA; Ms Wendy E. Lane, Chairman of American
investment firm Lane Holdings, Inc.; Mr Jussi Pesonen, President and CEO of
UPM; Ms Ursula Ranin; LLM, B.Sc. (Econ.); and Mr Veli-Matti Reinikkala,
President of ABB Process Automation Division, were re-elected as members of the
Board of Directors. The term of office of the members of the Board of Directors
lasts until the end of the next Annual General Meeting.
At the assembly meeting of the Board of Directors, Mr Björn Wahlroos was
elected as Chairman, and Mr Berndt Brunow and Mr Georg Holzhey were elected as
Vice Chairmen.
In addition, the Board of Directors elected from its members the Audit
Committee with Mr Michael C. Bottenheim as Chairman, and Ms Wendy E. Lane and
Mr Veli-Matti Reinikkala as members. The Human Resources Committee was elected,
with Mr Berndt Brunow as Chairman, and Mr Georg Holzhey and Ms Ursula Ranin as
members. Furthermore, the Nominating and Corporate Governance Committee was
elected, with Mr Björn Wahlroos as Chairman, and the other members being Mr
Matti Alahuhta and Mr Karl Grotenfelt.
Litigation
Certain competition authorities are continuing investigations into alleged
antitrust activities with respect to various products of 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 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. 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
31 March 2008.
Risk factors
If implemented, the announced third increase in the export duty on Russian wood
from the beginning of 2009 will make imports of round wood 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 during the second half of 2008.
Outlook for the second quarter of 2008
Global demand for printing papers is forecast to grow somewhat from last year.
In Europe, good demand is expected to continue especially in Eastern Europe. In
North America, weakening demand trend is expected to continue. The highest
growth in demand will be in China.
Current order books in printing papers are good. Due to capacity closures and
temporary shut downs, UPM's paper deliveries for the full year 2008 are
expected to be somewhat lower than last year. For the second quarter the
Group's average paper price in euros is expected to be slightly higher than
that of the first quarter 2008.
Demand for self-adhesive labelstock is forecast to grow in Europe and Asia but
in North America growth in demand has come to a halt due to weak economy and
subdued consumer demand. Self-adhesive labelstock prices in local currencies
are expected to increase from the first quarter in all main markets.
In wood products, strong demand for birch plywood and stable demand for spruce
plywood is expected to continue. In sawn timber outlook is cautious. Demand for
both redwood and whitewood is expected to weaken and prices to be lower than in
the beginning of the year.
Wood fibre costs for 2008 are forecast to be higher than in the earlier
forecast for the full year. However, the increase in the company's overall
costs
is still expected to be about 2%. This includes cost savings from the ongoing
profitability programme.
Divisional reviews
Magazine Papers
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2008 2007 2007 2007 2007 2007
Sales, EUR million 781 811 847 798 793 3,249
EBITDA, EUR million 1) 120 98 116 114 113 441
% of sales 15.4 12.1 13.7 14.3 14.2 13.6
Depreciation, -76 -83 -82 -443 -86 -694
amortisation and
impairment charges,
EUR million
Operating profit, 44 -62 34 -339 27 -340
EUR million
% of sales 5.6 -7.6 4.0 -42.5 3.4 -10.5
Special items, EUR - -77 - -371 - -448
million 2)
Operating profit 44 15 34 32 27 108
excl. special
items, EUR million
% of sales 5.6 1.8 4.0 4.0 3.4 3.3
Deliveries, 1,000t 1,136 1,238 1,266 1,189 1,155 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.
Q1 of 2008 compared with Q1 of 2007
Operating profit, excluding special items, for Magazine Papers was EUR 44
million (27 million). Sales declined slightly to EUR 781 million (793 million).
Paper deliveries had a volume of 1,136,000 tonnes (1,155,000).
First-quarter profitability improved, as a result of better efficiency. Fibre
costs increased from last year's level but fixed costs were lower. In export
markets, the average prices in local currencies were clearly higher. Due to the
strengthened euro against the USD and GBP, the average price for all magazine
paper deliveries was about the same as a year ago. Deliveries were maintained,
despite the closure of the Miramichi paper mill and the transfer of Jämsänkoski
PM4 to Fine and Speciality Papers Division.
Market review
In the first three months of the year, magazine paper demand in Europe
continued to be good. Coated magazine paper demand increased by about 2% and
demand for uncoated magazine paper by about 1% in comparison with the same
period in 2007. Export of magazine paper from Europe increased compared with
the previous year. In North America, demand for both coated and uncoated
magazine paper increased 4%. In Europe, prices increased from the beginning of
the year, but the average market price was down from last year. In North
America, prices increased from last year by about 15%.
Newsprint
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2008 2007 2007 2007 2007 2007
Sales, EUR million 332 378 365 379 348 1,470
EBITDA, EUR million 1) 60 79 91 100 92 362
% of sales 18.1 20.9 24.9 26.4 26.4 24.6
Depreciation, -46 -48 -47 -47 -48 -190
amortisation and
impairment charges,
EUR million
Operating profit, 15 36 44 53 44 177
EUR million
% of sales 4.5 9.5 12.1 14.0 12.6 12.0
Special items, EUR 1 5 - - - 5
million 2)
Operating profit 14 31 44 53 44 172
excl. special
items, EUR million
% of sales 4.2 8.2 12.1 14.0 12.6 11.7
Deliveries, 1,000t 636 702 667 683 630 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 mainly to other restructuring measures.
Q1 of 2008 compared with Q1 of 2007
Operating profit, excluding special items, for Newsprint decreased from EUR 44
million to EUR 14 million. Sales were EUR 332 million (348 million). Paper
deliveries were 636,000 tonnes (630,000).
The main reasons for the decreased profitability were lower paper prices, the
stronger euro against the GBP and USD, and higher cost of fibres. The average
price for all newsprint deliveries when translated into euros was about 5%
lower than in the corresponding period in 2007. Both recovered fibre and wood
costs were higher. Operational efficiency improved. In February, the Kajaani
PM4 was temporarily closed down for ten months.
Market review
In Europe, demand for standard and improved newsprint was approximately 2%
lower than in the first quarter of last year. Net exports from Europe
increased. In Europe, the average market price for standard newsprint was about
3% down. In North America, average prices for standard newsprint were flat and
demand decreased. In the other markets, prices increased in invoicing
currencies.
Fine and Speciality Papers
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2008 2007 2007 2007 2007 2007
Sales, EUR million 726 718 694 686 699 2,797
EBITDA, EUR million 1) 84 66 82 92 85 325
% of sales 11.6 9.2 11.8 13.4 12.2 11.6
Depreciation, -53 -54 -53 -53 -53 -213
amortisation and
impairment charges,
EUR million
Operating profit, 31 12 29 39 32 112
EUR million
% of sales 4.3 1.7 4.2 5.7 4.6 4.0
Special items, EUR - - - - - -
million
Operating profit 31 12 29 39 32 112
excl. special
items, EUR million
% of sales 4.3 1.7 4.2 5.7 4.6 4.0
Deliveries, 1,000t 981 977 954 960 968 3,859
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
Q1 of 2008 compared with Q1 of 2007
Operating profit, excluding special items, for Fine and Speciality Papers was
EUR 31 million (32 million). Sales increased from EUR 699 million to EUR 726
million. Paper deliveries were 981,000 tonnes (968,000).
The profitability of the division remained about the same. Wood and pulp costs
were markedly higher. This cost increase and the effect of the strengthened
euro were mainly offset by improved operational efficiency. The average price
for all fine and speciality paper deliveries, translated into euros, was about
the same. Prices for uncoated fine papers were higher, but those for coated
fine papers lower.
Market review
In Europe, demand for coated fine paper was unchanged when compared with that
in the same period last year. Demand for uncoated fine paper decreased by about
3%. Good demand for packaging papers continued, and demand for label papers
improved slightly. In Europe, average market prices for coated fine paper were
5% lower than in the first quarter of 2007. The average market price for
uncoated fine papers increased about 3%. In Asia, demand and prices for fine
paper increased from last year.
Label Materials
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2008 2007 2007 2007 2007 2007
Sales, EUR million 249 249 252 260 261 1,022
EBITDA, EUR million 1) 9 15 18 21 26 80
% of sales 3.6 6.0 7.1 8.1 10.0 7.8
Depreciation, -9 -9 -8 -8 -8 -33
amortisation and
impairment charges,
EUR million
Operating profit, 0 10 10 13 18 51
EUR million
% of sales 0.0 4.0 4.0 5.0 6.9 5.0
Special items, EUR - 4 - - - 4
million 2)
Operating profit 0 6 10 13 18 47
excl. special
items, EUR million
% of sales 0.0 2.4 4.0 5.0 6.9 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 other restructuring measures.
Q1 of 2008 compared with Q1 of 2007
The Label Division did not make an operating profit for the period. Last year's
operating profit, excluding special items, was EUR 18 million. Sales decreased
to EUR 249 million (261 million).
The decrease in sales was due to lower prices, the strengthened euro and
changes in market mix. In addition, the profitability of the division weakened
due to increased fixed costs partly related to the ongoing investment
programme, and due to higher raw material costs. The Label Division started to
implement price increases in various markets. In the first quarter, prices were
increased in North America, China and South Africa.
The Dixon, Illinois, factory project was completed in the quarter under review,
and the ramp-up of the operation has proceeded smoothly.
Market review
Due to weak US economy and consumer demand, label material demand is estimated
to have contracted during the first quarter in North America. In Europe, from
the beginning of this year demand is estimated to have grown slightly slower
than last year. In Asia, the strong increase in demand continued.
Wood Products
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2008 2007 2007 2007 2007 2007
Sales, EUR million 298 297 262 326 314 1,199
EBITDA, EUR million 1) 19 26 8 51 42 127
% of sales 6.4 8.8 3.1 15.6 13.4 10.6
Depreciation, -11 -11 -10 -11 -10 -42
amortisation and
impairment charges,
EUR million
Operating profit, 8 21 -2 41 32 92
EUR million
% of sales 2.7 7.1 -0.8 12.6 10.2 7.7
Special items, EUR - 6 - - - 6
million 2)
Operating profit 8 15 -2 41 32 86
excl. special
items, EUR million
% of sales 2.7 5.1 -0.8 12.6 10.2 7.2
Deliveries, plywood 241 239 204 247 255 945
1,000 m3
Deliveries, sawn 560 520 480 637 587 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 fourth quarter of 2007 include a gain of EUR 6 million
on sale of estate assets.
Q1 of 2008 compared with Q1 of 2007
Operating profit, excluding special items, for Wood Products decreased from EUR
32 million to EUR 8 million. Sales came to EUR 298 million (314 million).
Plywood deliveries were 241,000 (255,000) cubic metres and sawn timber
deliveries 560,000 (587,000) cubic metres.
The profitability of the division decreased mainly as a result of increased
wood costs and weakened timber market. The prices of timber decreased and the
profitability of sawmilling weakened further. The good profitability of plywood
continued as the demand remained healthy. Birch log availability limited the
production.
The closure of the Luumäki timber component and planing mill in Finland was
announced in February. Timber production was curtailed due to slowdown of
demand.
Market review
During the first quarter, plywood demand remained strong in all markets. Prices
were higher than a year ago. The demand for both redwood and whitewood sawn
timber was clearly weaker resulting in a decrease of prices. The supply of logs
remained tight.
Other Operations
EUR million Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2008 2007 2007 2007 2007 2007
Sales 1) 168 188 173 214 234 809
EBITDA 2) 45 67 51 32 60 210
Depreciation, -4 -31 -6 -5 -10 -52
amortisation and
impairment charges
Operating profit
Forestry 37 61 43 34 28 166
Energy Department, 38 42 23 19 28 112
Finland
Other and -2 20 - 59 -9 70
eliminations
Operating profit, 73 123 66 112 47 348
total
Special items 3) 4 10 - 71 - 81
Operating profit, 69 113 66 41 47 267
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.
Q1 of 2008 compared with Q1 of 2007
Excluding special items, operating profit for Other Operations was EUR 69
million (47 million). Sales decreased to EUR 168 million (234 million) due to
sold businesses in 2007.
The operating profit of Forestry was EUR 37 million (28 million). The increase
in the fair value of biological assets (growing trees) was EUR 41 million (23
million). Fellings from the Group's own forests decreased from last year and
the cost of wood raw material harvested from the Group's forests was EUR 13
million (26 million).
The operating profit of the Energy Department in Finland was EUR 38 million (28
million). Hydropower availability was very good, as the water reservoirs in the
Nordic countries were higher than normal, reducing the average cost of energy
generation and enabling increased sales outside the company. The Nord Pool
price of electricity was significantly higher than in the corresponding period
a year ago.
Associated companies and joint ventures
EUR million Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2008 2007 2007 2007 2007 2007
Share of result
after tax
Oy Metsä-Botnia Ab 26 6 19 12 21 58
Pohjolan Voima Oy -5 -4 -5 -5 - -14
Other 1 - - -1 - -1
Total 22 2 14 6 21 43
Deliveries
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2008 2007 2007 2007 2007 2007
Paper deliveries
Magazine papers, 1,136 1,238 1,266 1,189 1,155 4,848
1,000t
Newsprint, 1,000t 636 702 667 683 630 2,682
Fine and speciality 981 977 954 960 968 3,859
papers, 1,000t
Paper deliveries 2,753 2,917 2,887 2,832 2,753 11,389
total
Wood products deliveries
Plywood, 1,000 m3 241 239 204 247 255 945
Sawn timber, 1,000 m3 573 537 505 666 617 2,325
Helsinki, 24 April 2008
UPM-Kymmene Corporation
Board of Directors
Financial information
This Interim Report is unaudited.
Consolidated income statement
EUR million Q1/ Q1/ Q1-Q4/
2008 2007 2007
Sales 2,410 2,519 10,035
Other operating income 40 18 200
Costs and expenses -2,108 -2,119 -8,650
Change in fair 28 -3 79
value of biological assets
and wood harvested
Share of results of 22 21 43
associated companies and
jointventures
Depreciation, -199 -215 -1,224
amortisation and
impairment charges
Operating profit 193 221 483
Gains on - 2 2
available-for-sale
investments, net
Exchange rate and fair -10 3 -2
value gains and losses
Interest and other -49 -49 -191
finance costs, net
Profit before tax 134 177 292
Income taxes -31 -46 -211
Profit for the period 103 131 81
Attributable to:
Equity holders of the 102 131 85
parent company
Minority interest 1 - -4
103 131 81
Earnings per share for profit
attributable to the equity
holders of the parent company
Basic earnings per 0.20 0.25 0.16
share, EUR
Diluted earnings 0.20 0.25 0.16
per share, EUR
Condensed consolidated balance sheet
EUR million 31.03.08 31.03.07 31.12.07
ASSETS
Non-current assets
Goodwill 1,163 1,514 1,163
Other intangible assets 411 435 392
Property, plant and equipment 6,048 6,435 6,179
Biological assets 1,121 1,027 1,095
Investments in associated 1,178 1,175 1,193
companies and joint ventures
Deferred tax assets 252 360 284
Other non-current assets 442 281 333
10,615 11,227 10,639
Current assets
Inventories 1,420 1,273 1,342
Trade and other receivables 1,791 1,699 1,735
Cash and cash equivalents 98 200 237
3,309 3,172 3,314
Assets held for sale - 157 -
Total assets 13,924 14,556 13,953
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital 890 890 890
Share premium reserve - 826 -
Fair value and other reserves -53 178 35
Reserve for invested non-restricted 1,067 - 1,067
equity
Retained earnings 4,492 5,106 4,778
6,396 7,000 6,770
Minority interest 13 18 13
Total equity 6,409 7,018 6,783
Non-current liabilities
Deferred tax liabilities 748 781 745
Non-current interest-bearing 3,368 3,238 3,384
liabilities
Other non-current liabilities 594 600 624
4,710 4,619 4,753
Current liabilities
Current interest-bearing 995 1,068 931
liabilities
Trade and other payables 1,810 1,809 1,486
2,805 2,877 2,417
Liabilities related to assets held - 42 -
for sale
Total liabilities 7,515 7,538 7,170
Total equity and liabilities 13,924 14,556 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 - - -11 - -
Other items - - - - -
Net investment hedge, - - - - -
net of tax
Cash flow hedges
fair value gains/losses, - - - 9 -
net of tax
transfers from equity, - - - -8 -
net of tax
Available-for-sale investments
fair value gains/losses, - - - - -
net of tax
transfers to income - - - -2 -
statement, net of tax
Profit for the period - - - - -
Total recognised income - - -11 -1 -
and expense for the period
Share-based compensation, - - - 1 -
net of tax
Dividend paid - - - - -
Business combinations - - - - -
Total of other changes - - - 1 -
in equity
Balance at 31 March 2007 890 826 -100 278 -
Balance at 1 890 - -158 193 1,067
January 2008
Translation differences - - -144 - -
Other items - - - - -
Net investment hedge, - - 35 - -
net of tax
Cash flow hedges
fair value gains/losses, - - - 38 -
net of tax
transfers from equity, - - - -18 -
net of tax
Available-for-sale investments
fair value gains/losses, - - - - -
net of tax
transfers to income - - - - -
statement, net of tax
Profit for the period - - - - -
Total recognised income - - -109 20 -
and expense for the period
Share-based compensation, - - - 1 -
net of tax
Dividend paid - - - - -
Business combinations - - - - -
combinations
Total of other - - - 1 -
changes in equity
Balance at 31 March 2008 890 - -267 214 1,067
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 - -11 - -11
Other items 1 1 - 1
Net investment hedge, - - - -
net of tax
Cash flow hedges
fair value gains/losses, - 9 - 9
net of tax
transfers from equity, - -8 - -8
net of tax
Available-for-sale investments
fair value gains/losses, - - - -
net of tax
transfers to income - -2 - -2
statement, net of tax
Profit for the period 131 131 - 131
Total recognised income 132 120 - 120
and expense for the period
Share-based compensation, - 1 - 1
net of tax
Dividend paid -392 -392 - -392
Business combinations - - - -
Total of other changes -392 -391 - -391
in equity
Balance at 31 March 2007 5,106 7,000 18 7,018
Balance at 1 4,778 6,770 13 6,783
January 2008
Translation differences - -144 - -144
Other items -4 -4 - -4
Net investment hedge, - 35 - 35
net of tax
Cash flow hedges
fair value gains/losses, - 38 - 38
net of tax
transfers from equity, - -18 - -18
net of tax
Available-for-sale investments
fair value gains/losses, - - - -
net of tax
transfers to income - - - -
statement, net of tax
Profit for the period 102 102 1 103
Total recognised income 98 9 1 10
and expense for the period
Share-based compensation, - 1 - 1
net of tax
Dividend paid -384 -384 - -384
Business combinations - - -1 -1
combinations
Total of other -384 -383 -1 -384
changes in equity
Balance at 31 March 2008 4,492 6,396 13 6,409
Condensed consolidated cash flow statement
EUR million Q1/ Q1/ Q1-Q4/
2008 2007 2007
Cash flow from operating activities
Profit for the period 103 131 81
Adjustments, total 152 273 1,390
Change in working -106 -145 -204
capital
Cash generated from 149 259 1,267
operations
Finance costs, net -59 -24 -236
Income taxes paid -40 -48 -164
Net cash from 50 187 867
operating activities
Cash flow from investing activities
Acquisitions and -5 -2 -25
share purchases
Purchases of -175 -201 -673
intangible and
tangible assets
Asset sales and other 9 21 273
investing cash flow
Net cash used in -171 -182 -425
investing activities
Cash flow from financing activities
Change in loans and -17 -3 -10
other financial items
Dividends paid - - -392
Net cash used in -17 -3 -402
financing activities
Change in cash and -138 2 40
cash equivalents
Cash and cash 237 199 199
equivalents at
beginning of period
Foreign exchange -1 - -2
effect on cash
Change in cash and -138 2 40
cash equivalents
Cash and cash 98 201 237
equivalents at end
of period
Operating cash flow 0.10 0.36 1.66
per share, EUR
Quarterly information
EUR million Q1/08 Q4/07 Q3/07 Q2/07 Q1/07
Sales by segment
Magazine Papers 781 811 847 798 793
Newsprint 332 378 365 379 348
Fine and Speciality Papers 726 718 694 686 699
Label Materials 249 249 252 260 261
Wood Products 298 297 262 326 314
Other Operations 168 188 173 214 234
Internal sales -144 -129 -126 -126 -130
Sales, total 2,410 2,512 2,467 2,537 2,519
Operating profit by segment
Magazine Papers 44 -62 34 -339 27
Newsprint 15 36 44 53 44
Fine and Speciality Papers 31 12 29 39 32
Label Materials - 10 10 13 18
Wood Products 8 21 -2 41 32
Other Operations 73 123 66 112 47
Share of results of 22 2 14 6 21
associated companies and
joint ventures
Operating profit (loss), 193 142 195 -75 221
total
% of sales 8.0 5.7 7.9 -3.0 8.8
Gains on available-for-sale - - - - 2
investments, net
Exchange rate and fair -10 -4 -9 8 3
value gains and losses
Interest and other -49 -46 -42 -54 -49
finance costs, net
Profit (loss) before tax 134 92 144 -121 177
Income taxes -31 -63 -25 -77 -46
Profit (loss) for the 103 29 119 -198 131
period
Basic earnings per 0.20 0.06 0.23 -0.38 0.25
share, EUR
Diluted earnings 0.20 0.06 0.23 -0.38 0.25
per share, EUR
Average number of 512,581 514,085 527,012 527,111 523,261
shares, basic (1,000)
Average number of 513,412 515,322 529,530 530,980 527,086
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 - -77 - -371 -
Newsprint 1 5 - - -
Fine and Speciality Papers - - - - -
Label Materials - 4 - - -
Wood Products - 6 - - -
Other Operations 4 10 - 71 -
Share of results of - - - - -
associated companies and
joint ventures
Special items in 5 -52 - -300 -
operating profit, total
Special items reported - - - - -
after operating profit
Special items reported - -39 - -32 -
in taxes
Special items, total 5 -91 - -332 -
Operating profit, 188 194 195 225 221
excl. special items
% of sales 7.8 7.7 7.9 8.9 8.8
Profit before tax, 129 144 144 179 177
excl. special items
% of sales 5.4 5.7 5.8 7.1 7.0
Earnings per share, 0.19 0.24 0.23 0.28 0.25
excl. special items, EUR
Return on equity, 5.9 7.1 6.9 8.5 7.3
excl. special items, %
Return on capital 6.5 6.9 6.8 8.3 7.9
employed, excl. special
items, %
EUR million Q1-Q4/
2007
Sales by segment
Magazine Papers 3,249
Newsprint 1,470
Fine and Speciality 2,797
Papers
Label Materials 1,022
Wood Products 1,199
Other Operations 809
Internal sales -511
Sales, total 10,035
Operating profit by segment
Magazine Papers -340
Newsprint 177
Fine and Speciality 112
Papers
Label Materials 51
Wood Products 92
Other Operations 348
Share of results of 43
associated companies and
joint ventures
Operating profit (loss), 483
total
% of sales 4.8
Gains on available- 2
for-sale investments, net
Exchange rate and fair -2
value gains and losses
Interest and other -191
finance costs, net
Profit (loss) before tax 292
Income taxes -211
Profit (loss) for the 81
period
Basic earnings per 0.16
share, EUR
Diluted earnings 0.16
per share, EUR
Average number of 522,867
shares, basic (1,000)
Average number of 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 -448
Newsprint 5
Fine and Speciality -
Papers
Label Materials 4
Wood Products 6
Other Operations 81
Share of results of -
associated companies and
joint ventures
Special items in -352
operating profit, total
Special items reported -
after operating profit
Special items reported -71
in taxes
Special items, total -423
Operating profit, 835
excl. special items
% of sales 8.3
Profit before tax, 644
excl. special items
% of sales 6.4
Earnings per share, 1.00
excl. special items, EUR
Return on equity, 7.4
excl. special items, %
Return on capital 7.4
employed, excl. special
items, %
Changes in property, plant and equipment
EUR million Q1/ Q1/ Q1-Q4/
2008 2007 2007
Book value at 6,179 6,500 6,500
beginning of period
Capital expenditure 128 181 644
Decreases -2 -12 -96
Depreciation -183 -195 -752
Impairment charges - - -42
Impairment reversal - - 12
Translation -74 -39 -87
difference and
other changes
Book value at end 6,048 6,435 6,179
of period
Commitments and contingencies
EUR million 31.03.08 31.03.07 31.12.07
Own commitments
Mortgages 89 94 90
On behalf of associated companies and joint ventures
Guarantees for loans 10 11 10
loans
On behalf of others
Guarantees for loans - 1 -
Other guarantees 3 5 3
Other own commitments
Leasing commitments 26 26 21
for the next 12 months
Leasing commitments for 86 94 99
subsequent periods
Other commitments 66 80 70
Capital commitments
EUR million Completion Total By 31.12. Q1/08 After
cost 2007 31.03.08
Pulp mill rebuild, June 2008 325 226 36 63
Kymi
New bioboiler, Sep. 2009 75 11 5 59
Caledonian
New Poland factory, Nov. 2008 90 23 11 56
UPM Raflatac
PM5 quality upgrade, May 2008 38 14 7 17
Jämsänkoski
New wood-plastic Dec. 2008 12 - - 12
composite mill,
Germany
Notional amounts of derivative financial instruments
EUR million 31.03.08 31.03.07 31.12.07
Currency derivatives
Forward contracts 5,964 3,968 4,369
Options, bought 121 3 50
Options, written 174 3 60
Swaps 511 565 529
Interest rate derivatives
Forward contracts 4,639 2,851 3,642
Swaps 2,148 2,542 2,383
Other derivatives
Forward contracts 18 12 12
Swaps 2 12 3
Related party (associated companies and joint ventures) transactions and
balances
EUR million Q1/ Q1/ Q1-Q4/
2008 2007 2007
Sales to associated 26 15 130
companies
Purchases from 127 103 500
associated companies
Trade and other 26 14 29
receivables at end
of period
Trade and other 25 28 42
payables at end of period
Key exchange rates for the euro at end of period
31.03.08 31.12.07 30.09.07 30.06.07 31.03.07
USD 1.5812 1.4721 1.4179 1.3505 1.3318
CAD 1.6226 1.4449 1.4122 1.4245 1.5366
JPY 157.37 164.93 163.55 166.63 157.32
GBP 0.7958 0.7334 0.6968 0.6740 0.6798
SEK 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
divided by Shareholders' equity (average)
x 100
Return on capital employed, %:
Profit before tax + interest expenses and other financial expenses
divided by
Balance sheet total - non-interest-bearing liabilities (average)
x 100
Earnings per share:
Profit for the period attributable to equity holders of parent company
divided by
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 Helsinki
Main media
www.upm-kymmene.com
