UPM-Kymmene Corporation Stock Exchange Release February 1, 2007 at 12:00
UPM Financial Review 2006
Earnings per share for 2006 were 0.65 ( 0.50 for 2005), excluding
non-recurring items 0.80 ( 0.54). Operating profit for the year was
536 million ( 318 million), excluding non-recurring items 725 million
( 558 million). Operating profit for the fourth quarter was 247 million
( -58 million), excluding non-recurring items 252 million ( 202 million).
The profitability programme improved prerequisites for sustainable profitability.
Customer deliveries from closed production lines were successfully retained.
Key figures
Q4/ Q4/ Q1-Q4/ Q1-Q4/ Q1-Q4/
2006 2005 2006 2005 2004
Sales, m 2,583 2,574 10,022 9,348 9,820
EBITDA, m 1) 467 423 1,678 1,428 1,435
% of sales 18.1 16.4 16.7 15.3 14.6
Operating profit, m 247 -58 536 318 685
excluding 252 202 725 558 470
non-recurring items, m
Profit before tax, m 203 -91 367 257 556
excluding 202 160 550 399 341
non-recurring items, m
Net profit for the 195 -77 338 261 920
period, m
Earnings per share, 0.37 -0.15 0.65 0.50 1.76
excluding 0.30 0.22 0.80 0.54 0.49
non-recurring items,
Diluted earnings 0.38 -0.15 0.65 0.50 1.75
per share,
Return on equity, % 10.8 neg. 4.6 3.5 12.6
excluding 8.7 5.9 5.7 3.8 3.4
non-recurring items, %
Return on capital 8.8 neg. 4.7 3.4 6.0
employed, %
excluding 8.7 6.5 6.2 4.5 4.3
non-recurring items, %
Equity to assets 50.4 47.3 50.4 47.3 48.2
ratio at end of period, %
Gearing ratio at 56 66 56 66 61
end of period, %
Shareholders' 13.90 14.01 13.90 14.01 14.46
equity per share
at end of period,
Net interest-bearing 4,048 4,836 4,048 4,836 4,617
liabilities at end
of period, m
Capital employed at 11,634 12,650 11,634 12,650 12,953
end of period, m
Capital 197 220 699 749 686
expenditure, m
Personnel at end of 28,704 31,522 28,704 31,522 33,433
period
1) EBITDA is operating profit before depreciation, amortization and impairment
charges, and excluding the change in value of biological assets, the share of
results of associated companies and joint ventures and non-recurring items.
The market in 2006
Demand for printing and writing papers in Europe remained good, showing an
increase of 2% from the previous year, while in North America, demand for
printing and writing papers decreased by 1%. In other markets - most notably in
Asia - demand for printing and writing papers continued to grow rapidly.
Spending on advertising globally increased from the previous year. While spending
on printed advertising increased, it decreased as a proportion of total
advertising. Of the various types of printed advertising, direct-mail advertising
showed the strongest growth.
Average market prices for magazine papers in Europe and North America were about
the same as last year. Standard newsprint market prices in Europe were on average
5% higher, but prices for coated and uncoated fine papers decreased by about 2%.
In Asia, fine paper prices increased from last year.
Demand for self-adhesive labelstock grew in the main markets: North America,
Europe and Asia. Average prices for self-adhesive labelstock were slightly higher
than in the previous year. Demand for industrial wrappings remained at the
previous year's level. Prices were unchanged.
In wood products, birch plywood demand continued to be strong in all markets.
Spruce plywood markets maintained a good balance. Plywood prices increased slightly
in comparison to last year. Also, the markets for veneer and further processed goods
were solid. Redwood and whitewood sawn timber markets improved and prices
increased. The supply of logs tightened, exerting upward pressure on costs.
Changes in reporting classifications
From the beginning of 2006, the share of results of associated companies and
joint ventures related to business operations is reported in operating profit. In
previous years, the results were reported after operating profit. Also from the
beginning of 2006, part of the results of derivative instruments relating to cash
flow hedges are allocated to the respective division. Comparative years have been
revised accordingly.
Earnings
Q4 of 2006 compared with Q4 of 2005
Sales for the fourth quarter of 2006 were 2,583 million, slightly higher than
the 2,574 million for the fourth quarter of 2005. Paper deliveries were
2,892,000 tonnes (2,907,000 tonnes).
Operating profit was 247 million (loss of 58 million), 9.6% of sales (-2.3%).
Operating profit excluding non-recurring items was 252 million, 9.8% of sales
( 202 million, 7.8% of sales). Operating profit for the fourth quarter includes
non-recurring charges net of 5 million ( 260 million). The main non-recurring
items were a provision of 13 million mainly for personnel expenses for the
profitability programme and of a gain of 10 million from the sale of the Rauma
power plant to Pohjola Voima Oy.
Profitability of all divisions improved from last year. Transfer of production
from the closed production lines to UPM's other paper machines improved capacity
utilization. Profitability benefited from higher newsprint and fine paper prices
and lower fixed costs. On the other hand, energy prices especially in Central
Europe and the UK were higher than a year ago.
The share of results of associated companies and joint ventures was 9 million
( 14 million).
Profit before tax was 203 million (loss of 91 million) and excluding
non-recurring items 202 million ( 160 million). A gain of 6 million from the
sale of shares was reported after operating profit as a non-recurring gain.
Interest and other finance costs net were 46 million ( 33 million). The
average interest rate on borrowings increased; on the other hand, net
interest-bearing liabilities decreased. Exchange rate and fair value gains and
losses resulted in a gain of 4 million ( 0 million).
Income taxes were 8 million ( 14 million positive). Fourth-quarter income
taxes include income of 35 million primarily from a receivable arising from the
change in German tax legislation.
Profit for the fourth quarter was 195 million (loss of 77 million) and
earnings per share were 0.37 ( -0.15). Earnings per share excluding
non-recurring items were 0.30 ( 0.22).
Return on equity was 10.8% (neg.) and return on capital employed 8.8% (neg.).
Excluding non-recurring items, the respective figures were 8.7% (5.9%) and 8.7%
(6.5%).
2006 compared with 2005
Deliveries and results in 2005 were affected by the labour dispute in Finland
during the second quarter of 2005.
Sales for 2006 were 10,022 million ( 9,348 million) showing an increase of 7%
from the previous year's figure. Paper deliveries were 10,988,000 tonnes
(10,172,000 tonnes).
Operating profit was 536 million ( 318 million), 5.3% of sales (3.4%).
Operating profit excluding non-recurring items was 725 million, 7.2% of sales
( 558 million, 6.0% of sales). Operating profit for 2006 includes non-recurring
gains of 144 million and charges of 333 million, for a net figure of 189
million in charges (net figure of 240 million in charges).
Due to the profitability programme announced in March 2006, an impairment of
135 million mostly attributable to the closure of Voikkaa paper mill, and a
provision of 61 million from personnel expenses and other restructuring
charges, in total to 196 million were reported as non-recurring charges. An
impairment of 115 million was made from the production facilities at the
Miramichi magazine paper mill in Canada, mainly due to the negative currency
impact on the profitability. In addition, a loss of 10 million from the sale of
the UPM-Kymmene Loulay S.A. plywood mill in France, a charge for a donation of
5 million to UPM-Kymmene Cultural Foundation and other charges of 7 million
were reported as non-recurring charges.
Reported as non-recurring gains were a capital gain of 41 million on the sale
of Group Head Office real estate, a 93 million tax-exempt capital gain on the
sale of the Finnish building materials merchant Puukeskus Oy and a gain of 10
million on the sale of the Rauma power plant to Pohjolan Voima Oy.
The profitability of all divisions improved from last year. Transfer of
production from the closed production lines to UPM's other paper machines
improved capacity utilization. Energy prices, especially in Central Europe and
the UK, were higher. Limited availability of wood raw material in Finland due to
unusual weather conditions in the autumn put upward pressure on wood procurement
costs. The increase in UPM's net costs was, however, moderate partly due to the
high self sufficiency in chemical pulp and electricity.
The fair value of biological assets decreased by 126 million (increase of 34
million) mainly due to an increase of half a percentage point in the discount
rate, 7.5% applied in forest valuation, and higher fellings from own forests.
Deliveries of magazine papers were higher, and average prices increased slightly.
Newsprint deliveries increased and average prices were higher than a year ago.
Also fine paper deliveries increased. Average prices of fine papers were slightly
down from last year. In the Converting division, profitability of UPM Raflatac's
self-adhesive labelstock improved, and was good. Also Walki Wisa's profitability
improved. The profitability of plywood was good. Sawmilling improved its
profitability, and operating profit turned positive due to higher prices and
increased deliveries. The operating profit of Other Operations was lower than a
year ago the main reason being decrease in the fair value of biological assets
and lower availability of hydropower.
The share of the results of associated companies and joint ventures was 61
million ( 41 million).
Profit before tax was 367 million ( 257 million) and excluding non-recurring
items 550 million ( 399 million). A gain of 6 million on the sale of shares
was reported after operating profit as a non-recurring gain. Interest and other
finance costs were 185 million ( 147 million) net. The average interest rate
on borrowings increased; on the other hand, net interest-bearing liabilities
decreased. Exchange rate and fair value gains and losses resulted in a gain of
18 million (loss of 4 million).
Income taxes were 29 million ( 4 million positive). Taxes include, as a
negative item, a reduction of 22 million in the deferred tax assets of
Miramichi due to a decrease in the income tax rate in Canada, and as positive
items 20 million from the increase in deferred tax assets related to the change
in the Group's structure in Canada, and 28 million from a receivable arising
from the change in German tax legislation.
The effective tax rate was 7.8% (positive 1.6%). Excluding the effect of
non-recurring items, the effective tax rate was 24.4% (29.0%).
Profit for the year was 338 million ( 261 million) and earnings per share were
0.65 ( 0.50). Earnings per share excluding non-recurring items were 0.80 (
0.54). Operating cash flow per share was 2.32 ( 1.63).
Return on equity was 4.6% (3.5%) and return on capital employed 4.7% (3.4%).
Excluding non-recurring items, the respective figures were 5.7% (3.8%) and 6.2%
(4.5%).
Deliveries
Paper deliveries for the year were 10,988,000 tonnes (10,172,000 tonnes).
Magazine paper deliveries were 4,761,000 tonnes (4,486,000 tonnes), newsprint
2,677,000 tonnes (2,592,000 tonnes) and fine and speciality papers 3,550,000
tonnes (3,060,000 tonnes).
Plywood production was 955,000 cubic metres (916,000 cubic metres) and sawn
timber production 2,357,000 cubic metres (2,147,000 cubic metres).
Financing
Cash flow from operating activities, before capital expenditure and financing,
was 1,215 million ( 853 million). The decrease in net working capital amounted
to 21 million (increase of 234 million).
The gearing ratio as of 31 December was 56% (66% on 31 December 2005). Net
interest-bearing liabilities at the end of the year came to 4,048 million (
4,836 million). In December 2006, UPM bought back three leased hydropower plants
located on the Kymijoki river in Finland from the mutual pension insurance
company Varma for a total of 126 million with no impact on UPM's balance sheet.
The average maturity of borrowings at year end was 7.1 years (7.5 years).
In 2006, UPM's credit ratings were unchanged. At the end of the year, the ratings
for UPM's public bonds were BBB from S&P and Baa2 from Moody's.
Personnel
In 2006, UPM had an average of 31,039 employees (32,949 employees). At the
beginning of the year the number of employees was 31,522 and at the end of the
year 28,704, a decrease of 2,818 persons. Of this, a decrease of 2,371 was due to
the closures of production lines and rationalisation of operations and 608 due to
the sale of Puukeskus. In UPM Raflatac, the number of employees increased by 161.
Capital expenditure
In 2006, capital expenditure, excluding acquisitions and share purchases, was
631 million, 6.3% of sales ( 705 million, 7.5% of sales). Including acquisitions
and share purchases, capital expenditure was 699 million, 7.0% of sales (749
million, 8.0%).
In 2006, acquisitions and share purchases consisted mainly of an investment in
shares of the Metsä-Botnia pulp mill in Uruguay for 56 million ( 21 million).
In 2006, a decision was made to rebuild the recovery plant at the Kymi pulp mill.
The total investment cost is 325 million and it is planned for completion in
the summer of 2008. At the Jämsänkoski mill, 45 million will be invested to
convert coated magazine paper machine 4 to produce label papers. The conversion
is scheduled for completion in the second quarter of 2007. The investment plan
announced in August 2005 to build an uncoated magazine paper machine in
Continental Europe was postponed. At the plywood mills in Savonlinna and
Jyväskylä, 8 million will be invested to improve production efficiency and
product quality. The investments are scheduled for completion by the end of the
first quarter of 2007.
A 25 million investment will be made in bleached pulp production at the
Tervasaari mill, where a new bleaching line is scheduled to start up in autumn
2007. An investment of 6 million will be made in plywood manufacturing at the
Chudovo and Heinola mills.
A new self-adhesive labelstock factory will be built in Dixon, Illinois, in the
United States. The value of this investment is approximately USD 109 million, and
the new factory is slated for completion in the first quarter of 2008. At the
Jämsänkoski mill, 38 million will be invested in the quality of uncoated
magazine paper. The investment will be completed in the second quarter of 2008.
A new power plant using biofuels will be built at the Caledonian mill in Irvine,
Scotland - the investment cost, net, is approximately 72 million and start-up
is projected for the third quarter of 2009.
The modernization of Tervasaari release paper machine 8 was completed at the end
of February 2006. This investment increased annual production capacity by 45,000
tonnes to 175,000 tonnes and further improved the quality of the paper. Walki
Wisa's converting factory in China started its operations in March 2006. In
September, at the Nordland and Docelles paper mills, the rebuilds of two paper
machines were completed. These investments substantially improved product quality
and efficiency of the production lines. Completed in September, the modernisation
investment for the film lamination line at the Tampere labelstock factory doubled
the filmic self-adhesive labelstock capacity of the factory and further
strengthened UPM Raflatac's position in the growing filmic labelstock market. At
the Shotton paper mill in Wales, the new sludge boiler entered production use at
the end of the year. The investment further improved the mills´ energy
self-sufficiency and increased the use of biofuels. UPM Raflatac's new production
plant in China started commercial production, ahead of the original schedule, in
December.
The biofuel-fired power plant investment for the Chapelle Darblay mill in France
is proceeding according to plan, with completion scheduled for the first quarter
of 2007. In Uruguay, UPM's associated company, Metsä-Botnia, is constructing a
pulp mill with an annual capacity of 1 million tonnes. The construction project
began in 2005 and is on schedule for a Q3/2007 start-up. The governments of
Uruguay and Argentina are engaged in a dispute over the environmental impact of
the mill.
Changes in the Group's structure
In March 2006, in connection with the Uruguayan pulp mill project, UPM sold its
shares in the Uruguayan forestry company Compañia Forestal Oriental S.A. to
Metsä-Botnia for 36 million. Control over Wisapower Oy was transferred from UPM
to PVO in April. The transaction decreased the Group's assets net by 152
million from those held on 31 December, 2005. The Group Head Office real estate
was sold for 77 million in June, which generated a 41 million capital gain.
UPM will continue to occupy the premises under a lease contract. In August, UPM
sold its Finnish building materials merchant Puukeskus Oy to the private equity
investor Triton and Puukeskus's management. The sale resulted in a 93 million
capital gain. Puukeskus had annual sales of approximately 400 million and
employed 600 people. Also, UPM sold the Rauma power plant to Pohjolan Voima Oy in
December. The sale had no material impact on the Group's assets and liabilities.
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 finalized, the programme is estimated to result in
annual cost savings of approximately 200 million. The annual cost savings in
2007 are estimated to amount to 110 million.
As part of the programme, in June UPM closed the Voikkaa paper mill, which had an
annual capacity of 410,000 tonnes of coated magazine paper, and Kymi paper
machine 7, with an annual capacity of 150,000 tonnes of coated fine paper. In the
first quarter of 2007, UPM will stop the production of coated magazine paper on
Jämsänkoski paper machine 4, which has an annual capacity of 120,000 tonnes of
coated magazine paper. The paper machine will be converted to produce label
papers in the third quarter of 2007. UPM will close Tervasaari paper machine 6,
with an annual capacity of 115,000 tonnes of brown sack paper and semi-alkaline
pulp (SAP) line, with an annual capacity of 60,000 tonnes during the first half
of 2007.
Most employee negotiations relating to the profitability programme were completed
in July 2006.
Shares
In 2006, UPM shares worth, in total, 16,021 million were traded on the Helsinki
Stock Exchange ( 11,358 million). The highest per-share quotation was 20.91 in
March and the lowest 15.36 in June. On the New York Stock Exchange, the
company's shares were traded to a total value of USD 310 million (USD 338
million).
The Annual General Meeting held on 22 March 2006 approved a proposal by the Board
of Directors to buy back a minimum of 100 and a maximum of 49,825,000 own shares.
The meeting authorised the Board to decide on the disposal of shares so
purchased. No shares were purchased based on this authorisation in 2006. The
meeting also authorised the Board of Directors to donate 162,000 own shares held
by the company to a cultural foundation to be established. Subsequently, the
company does not hold any own shares.
Additionally the meeting authorised the Board of Directors to decide on an
increase in the share capital, disapplying the pre-emptive rights of
shareholders, by issuing new shares and/or convertible bond loans in one or more
issues. On the basis of such issues of new shares or convertible bonds, the share
capital can be increased by a maximum of 169,405,000, representing no more than
99,650,000 new shares having a book value of 1.70 per share.
In 2006, 4,300 shares were subscribed for through exercising of outstanding share
options. The number of shares entered in the Trade Register on December 31, 2006
was 523,259,430. Through the issuance authorisation and share options, the number
of shares may increase to a maximum of 647,101,130.
Apart from the above, the Board of Directors has no current authorization to
issue shares, convertible bonds or share options.
The company has received following notifications from shareholders: On December
15 2006, the Capital Group Companies Inc. held 51,660,753 shares representing
9.78 per cent of share capital, of which shares it held voting rights
representing 7.86 per cent of the share capital of UPM-Kymmene Corporation. On
March 7 2005, the Franklin Templeton Group and its affiliated investment advisers
of Franklin Resources held 10.11% of the voting rights of UPM-Kymmene
Corporation.
The listing of UPM 2005F share options commenced on October 2 2006.
Company directors
The Annual General Meeting of 22 March 2006 elected Ms Ursula Ranin, LLM, B.Sc.
(Econ.), a former General Counsel of Nokia Corporation as a new member to the
Board of Directors. In addition, Mr Martti Ahtisaari, former President of the
Republic of Finland; Mr Michael C. Bottenheim, LLM, MBA; Mr Berndt Brunow,
President and CEO 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 Haindl'sche Papierfabriken KGaA; Ms Wendy E.
Lane, Chairman of American Investment firm Lane Holdings, Inc; Mr Jorma Ollila,
Chairman and CEO of Nokia Corporation; Ms Françoise Sampermans, BA Psych,
Publishing Consultant and Mr Vesa Vainio, LLM were re-elected to the Board of
Directors.
At the Board of Directors' assembly meeting, Mr Vesa Vainio was re-elected as
chairman. Mr Jorma Ollila and Mr Berndt Brunow were elected as vice chairmen. In
addition, the Board of Directors elected from its independent members an Audit
Committee, with Mr Michael C. Bottenheim as chairman and Ms Wendy E. Lane and Ms
Ursula Ranin as members. A Human Resources Committee was elected with Mr Berndt
Brunow as chairman, and Mr Georg Holzhey and Ms Françoise Sampermans as members.
Furthermore, a Nomination and Corporate Governance Committee was elected with Mr
Jorma Ollila as Chairman and Mr Karl Grotenfelt and Mr Georg Holzhey as members.
Litigation
The 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 of its Member States,
Canada and certain other countries have granted UPM conditional full immunities
with respect to certain conducts disclosed to the authorities. During 2006, the
investigations of the U.S. labelstock industry and European fine paper,
newsprint, magazine paper, label paper and self-adhesive labelstock markets were
closed by the U.S. Department of Justice and the European Commission competition
authority. In December 2006, the Finnish Competition Authority decided not to
propose a fine for UPM in its investigation of raw wood procurement in Finland.
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.
In March 2006, UPM paid a fine of 56.55 million imposed by the European
Commission concerning antitrust activities in the market for plastic sacks but
has appealed the decision.
Events after the balance sheet date
On 30 January 2007, M-real announced to sell 9% of Metsä-Botnia's shares to its
parent company Metsäliitto for 240 million. Consequently, M-real rejected UPM's
offer made in November 2006 to buy 15% of Metsä-Botnia's shares from M-real for
500 million.
The Group's management is not aware of any other significant events occurring
after 31 December 2006 which would have had an impact on the financial
statements.
Outlook for 2007
Demand for printing papers is forecast to grow somewhat from last year. In North
America weak demand is expected to continue. The strongest growth in demand will
be in emerging markets. UPM expects its paper deliveries to increase from last
year. UPM's average paper price for the first quarter of 2007 is slightly higher
than that of the fourth quarter of 2006.
Demand for self-adhesive labelstock is forecast to grow in all markets.
Labelstock prices are forecast to be stable. Demand for industrial wrappings is
expected to grow somewhat.
In wood products, demand for plywood and sawn timber will remain good.
Wood, raw material and energy prices continue to rise. As a result of expected
cost savings from the ongoing profitability programme, the increase in the
company's overall costs is expected to remain at the level of 1-2%.
Capital expenditure is forecast to be about the same as 2006.
The Group expects its profits to increase from last year.
Dividend for 2006
The Board of Directors will propose to the Annual General Meeting to be held on
27 March 2007 that dividend of 0.75 per share be paid in respect of the 2006
financial year ( 0.75 for 2005). It is proposed that the dividend be paid on
10 April 2007.
Financial information in 2007
The Annual Report for 2006 will be published on the company's website, (main page
address: www.upm-kymmene.com) on 12 March 2007. The printed Annual Report will
be published in the week beginning 19 March 2007.
Publication schedule of interim reports:
Interim Report January-March 2007: 25 April 2007
Interim Report January-June 2007: 26 July 2007
Interim Report January-September 2007: 30 October 2007
Divisional reviews
Magazine Papers
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
06 06 06 06 05 05 05 05
Sales, m 905 861 817 771 928 726 697 743
EBITDA, m 1) 157 155 145 113 163 155 59 130
% of sales 17.3 18.0 17.7 14.7 17.6 21.3 8.5 17.5
Depreciation, -88 -209 -210 -97 -262 -103 -102 -99
amortization and impairment charges,m
Operating profit, m 75 -62 -85 16 -99 35 -43 31
% of sales 8.3 -7.2 -10.4 2.1 -10.7 4.8 -6.2 4.2
Non-recurring 6 -126 -133 - -156 -17 - -
items, m 2)
Operating profit excl. 69 64 48 16 57 52 -43 31
non-recurring items
and amortization of goodwill, m
% of sales 7.6 7.4 5.9 2.1 6.1 7.2 -6.2 4.2
Deliveries, 1,000 t 1,288 1,227 1,148 1,098 1,308 1,048 1,020 1,110
Q1-Q4/ Q1-Q4/ Q1-Q4/
06 05 04
Sales, m 3,354 3,094 3,308
EBITDA, m 1) 570 507 497
% of sales 17.0 16.4 15.0
Depreciation, -604 -566 -535
amortization and
impairment charges,m
Operating profit, m -56 -76 -67
% of sales -1.7 -2.5 -2.0
Non-recurring -253 -173 -104
items, m 2)
Operating profit excl. 197 97 95
non-recurring items
and amortization of goodwill, m
% of sales 5.9 3.1 2.9
Deliveries, 1,000 t 4,761 4,486 4,940
Capital employed 4,010 4,397 4,749
(average), m
ROCE (excl. 4.9 2.2 2.0
non-recurring items and
amortization of goodwill), %
1) EBITDA is operating profit before depreciation, amortization and impairment
charges and excluding non-recurring items.
2) Non-recurring items in the second quarter 2006 include personnel charges of
20 million related to the profitability programme, and impairment charges of
113 million related to the closure of the Voikkaa paper mill. In the third
quarter 2006, non-recurring items include personnel charges of 8 million and
impairment charges of 3 million at Voikkaa, and impairment charges of 115
million for Miramichi. In the fourth quarter, non-recurring items relate
primarily to the capital gain on the sale of Rauma power plant. Non-recurring
items in 2005: impairment charge of 151 million for Miramichi and 5 million
in non-recurring depreciation at Augsburg (4th quarter), and 17 million
provision for pension costs at Miramichi (3rd quarter).
Q4 of 2006 compared with Q4 of 2005
Operating profit, excluding non-recurring items, for Magazine Papers increased by
12 million to 69 million. Sales for the fourth quarter decreased to 905
million from 928 million. Paper deliveries had a volume of 1,288,000
(1,308,000) tonnes.
The fourth-quarter profitability of Magazine Papers improved on account of fixed
costs being lower. Average prices for magazine papers when translated into euros
were 2% lower than in the previous year. The decrease was mainly due to the
weaker US dollar and decreased prices in North America.
2006 compared with 2005
Operating profit, excluding non-recurring items, for Magazine Papers increased
from 97 million to 197 million. Sales increased from 3,094 million to
3,354 million. The paper delivery volume was 4,761,000 tonnes (4,486,000 tonnes).
Profitability of magazine papers improved from the previous year. Higher
deliveries and average prices improved profitability, while the lower US dollar
exchange rate had a negative effect. The Voikkaa magazine paper mill was closed
at the end of June, and its production was transferred to UPM's other mills,
improving their utilisation of capacity. The Miramichi magazine paper mill
experienced a three-month shutdown in the first half of the year.
Translated into euros, average prices for magazine papers were slightly higher
than those for 2005.
Markets
In Europe, coated magazine paper demand was flat. Uncoated magazine paper demand
increased by 7% from the previous year. In North America, demand for coated
magazine paper increased slightly while the uncoated magazine paper figure
decreased by 3%. In other markets, especially in Asia, demand for magazine papers
continued its rapid growth. Average market prices for magazine papers in Europe
and North America were about the same as last year.
Newsprint
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
06 06 06 06 05 05 05 05
Sales, m 380 360 351 345 379 296 320 313
EBITDA, m 1) 89 98 86 72 75 75 60 65
% of sales 23.4 27.2 24.5 20.9 19.8 25.3 18.8 20.8
Depreciation, -48 -48 -47 -47 -55 -48 -48 -47
amortization and impairment charges,m
Operating profit, m 39 50 34 25 20 27 12 18
% of sales 10.3 13.9 9.7 7.2 5.3 9.1 3.8 5.8
Non-recurring -2 - -5 - -5 - - -
items, m 2)
Operating profit 41 50 39 25 25 27 12 18
excl. non-recurring items
and amortization of goodwill, m
% of sales 10.8 13.9 11.1 7.2 6.6 9.1 3.8 5.8
Deliveries, 1,000 t 697 666 660 654 736 593 631 632
Q1-Q4/ Q1-Q4/ Q1-Q4/
06 05 04
Sales, m 1,436 1,308 1,304
EBITDA, m 1) 345 275 229
% of sales 24.0 21.0 17.6
Depreciation, -190 -198 -224
amortization and
impairment charges,m
Operating profit, m 148 77 7
% of sales 10.3 5.9 0.5
Non-recurring -7 -5 2
items, m 2)
Operating profit excl. 155 82 33
non-recurring items
and amortization of goodwill, m
% of sales 10.8 6.3 2.5
Deliveries, 1,000 t 2,677 2,592 2,719
Capital employed 1,921 1,900 2,002
(average), m
ROCE (excl. 8.1 4.3 1.6
non-recurring items and
amortization of goodwill), %
1) EBITDA is operating profit before depreciation, amortization and impairment
charges and excluding non-recurring items.
2) The non-recurring cost booked for 2006 relates mainly to the profitability
programme, and for 2005 is due to one-time depreciation at Augsburg.
Q4 of 2006 compared with Q4 of 2005
Operating profit, excluding non-recurring items, for Newsprint increased to 41
million from 25 million. Sales for the fourth quarter totalled 380 million
( 379 million). The total volume of paper deliveries was 697,000 tonnes
(736,000 tonnes).
The profitability of the Newsprint division benefited from higher paper prices.
This period's average prices for both standard and improved newsprint when
translated into euros were up about 6% on the figures for the equivalent period
of 2005. Higher recycled paper and wood prices had a negative effect on
profitability.
2006 compared with 2005
Operating profit, excluding non-recurring items, for Newsprint increased from
82 million in 2005 to 155 million. Sales amounted to 1,436 million, 10%
higher than in 2005. Paper deliveries were 2,677,000 tonnes (2,592,000 tonnes).
The main contributor to the improved profitability was the higher price of
newsprint. Average prices for standard and improved newsprint were about 6%
higher than in 2005, when translated into euros. Capacity was in good use. Higher
energy prices in Central Europe and the UK negatively affected results. The
average price of the most important raw material, recycled paper, was about the
same as in 2005.
Markets
In Europe, demand for standard and improved newsprint showed a 2% increase
compared with the year before. In Europe, standard newsprint market prices were,
on average, 5% higher. Also in the other markets, with the exception of North
America, growth in demand increased.
Fine and Speciality Papers
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
06 06 06 06 05 05 05 05
Sales, m 667 626 627 640 626 574 495 539
EBITDA, m 1) 104 106 76 82 88 92 34 95
% of sales 15.6 16.9 12.1 12.8 14.1 16.0 6.9 17.6
Depreciation, -56 -55 -71 -55 -68 -56 -51 -49
amortization and impairment charges, m
Operating profit, m 44 50 -13 27 20 36 -17 46
% of sales 6.6 8.0 -2.1 4.2 3.2 6.3 -3.4 8.5
Non-recurring -3 -2 -36 - -8 - - -
items, m 2)
Operating profit excl. 47 52 23 27 28 36 -17 46
non-recurring items
and amortization of goodwill, m
% of sales 7.0 8.3 3.7 4.2 4.5 6.3 -3.4 8.5
Deliveries, 1,000 t. 907 878 884 881 863 793 684 720
Q1-Q4/ Q1-Q4/ Q1-Q4/
06 05 04
Sales, m 2,560 2,234 2,286
EBITDA, m 1) 368 309 367
% of sales 14.4 13.8 16.1
Depreciation, -237 -224 -199
amortization and
impairment charges,m
Operating profit, m 108 85 171
% of sales 4.2 3.8 7.5
Non-recurring -41 -8 3
items, m 2)
Operating profit excl. 149 93 173
non-recurring items
and amortization of goodwill, m
% of sales 5.8 4.2 7.6
Deliveries, 1,000 t 3,550 3,060 3,074
Capital employed 2,760 2,843 2,640
(average), m
ROCE (excl. 5.4 3.3 6.6
non-recurring items and
amortization of goodwill), %
1) EBITDA is operating profit before depreciation, amortization and impairment
charges and excluding non-recurring items.
2) In 2006, non-recurring items include personnel and impairment charges related
to the profitability programme. In 2005, one-time depreciation was booked for the
rebuild of Nordland's paper machine.
Q4 of 2006 compared with Q4 of 2005
Operating profit, excluding non-recurring items, for Fine and Speciality Papers
increased to 47 million ( 28 million). Sales were 667 million ( 626
million). Paper deliveries were 907,000 tonnes (863,000 tonnes).
Operating efficiency improved in the fourth quarter and deliveries increased.
Increasing raw material prices had a negative effect on profitability. Average
prices for fine and speciality papers translated into euros were up 1%.
2006 compared with 2005
Operating profit, excluding non-recurring items, for Fine and Speciality Papers
was 149 million ( 93 million). Sales were 2,560 million (2,234 million).
Paper deliveries increased from 3,060,000 tonnes to 3,550,000 tonnes.
Energy and raw material costs increased from the last year but the negative
impact of these was partially offset by improved operating efficiency. Kymi paper
machine 7 was closed at the end of June. Its production was transferred to other
machines at the Kymi and Nordland Papier mills due to which their capacity
utilisation improved. Speciality paper capacity was in good use. The new paper
machine, started up in May 2005 in China, contributed to the volume increase.
Average prices for fine and speciality papers translated into euros were slightly
down from last year.
Markets
In Europe, demand for coated fine papers increased by 2% and for uncoated fine
papers by 1% compared with the previous year. For label and packaging papers, the
good demand continued. In Asia, demand for coated and uncoated fine papers
increased. Market prices for coated and uncoated fine papers in Europe decreased
by about 2%. In Asia, fine paper prices were higher than a year ago.
Converting
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
06 06 06 06 05 05 05 05
Sales, m 323 312 316 323 297 343 346 361
EBITDA, m 1) 25 23 26 28 18 22 17 32
% of sales 7.7 7.4 8.2 8.7 6.1 6.4 4.9 8.9
Depreciation, -9 -11 -9 -9 -11 -11 -11 -12
amortization and
impairment charges,m
Operating profit, m 16 12 17 19 8 36 6 20
% of sales 5.0 3.8 5.4 5.9 2.7 10.5 1.7 5.5
Non-recurring - - - - 1 25 - -
items, m 2)
Operating profit excl. 16 12 17 19 7 11 6 20
non-recurring items
and amortization of goodwill, m
% of sales 5.0 3.8 5.4 5.9 2.4 3.2 1.7 5.5
Q1-Q4/ Q1-Q4/ Q1-Q4/
06 05 04
Sales, m 1,274 1,347 1,414
EBITDA, m 1) 102 89 122
% of sales 8.0 6.6 8.6
Depreciation, -38 -45 -53
amortization and
impairment charges,m
Operating profit, m 64 70 71
% of sales 5.0 5.2 5.0
Non-recurring - 26 2
items, m 2)
Operating profit excl. 64 44 74
non-recurring items
and amortization of goodwill, m
% of sales 5.0 3.3 5.2
Capital employed 489 603 654
(average), m
ROCE (excl. 13.1 7.3 11.3
non-recurring items and
amortization of goodwill), %
1) EBITDA is operating profit before depreciation, amortization and impairment
charges and excluding non-recurring items.
2) Non-recurring items in 2005 include a gain of 26 million from the sale of
Loparex.
Q4 of 2006 compared with Q4 of 2005
Operating profit, excluding non-recurring items, for Converting was 16 million
( 7 million). Fourth-quarter sales for the division came to 323 million ( 297
million).
UPM Raflatac's self-adhesive labelstock profitability was good. Prices were
slightly higher than a year earlier. UPM Raflatac's sales increased in all
markets. The internal efficiency of Walki Wisa improved, but price increases for
oil-based raw materials had a negative effect on the result. Sales of Walki Wisa
increased.
2006 compared with 2005
For 2006, Converting's operating profit, excluding non-recurring items, increased
to 64 million from 44 million. The division's sales came to 1,274 million
( 1,347 million). The Loparex Group, with approximately 340 million in annual
sales, was sold in August 2005.
The profitability of UPM Raflatac's self-adhesive labelstock improved and was
good. Volumes were higher, and sales increased by 15% to 987 million. Notable
growth took place in North America and Europe but also in Asia. Sales growth in
Asia Pacific accelerated towards the end of the year, led by good development in
China. The new factory in Changshu made its first commercial deliveries at the
end of December. Prices of raw materials remained largely unchanged. The growth
in sales volume for RFID tags accelerated towards the end of the year.
The profitability of Walki Wisa's industrial wrappings improved, mainly as a
result of internal measures. Sales amounted to 287 million, 7% higher than for
2005.
Markets
Demand for self-adhesive labelstock grew in North America, Europe, and Asia.
Average prices for self-adhesive labelstock were slightly higher. The demand for
industrial wrappings continued to be strong, at the previous year's level;
however, competition remained fiery as well. Prices were unchanged.
Wood Products
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
06 06 06 06 05 05 05 05
Sales, m 287 310 378 346 331 302 343 314
EBITDA, m 1) 24 22 33 25 22 9 26 29
% of sales 8.4 7.1 8.7 7.2 6.6 3.0 7.6 9.2
Depreciation, -10 -11 -11 -11 -40 -11 -12 -12
amortization and impairment charges,m
Operating profit, m 14 104 22 4 -23 -2 14 17
% of sales 4.9 33.5 5.8 1.2 -6.9 -0.7 4.1 5.4
Non-recurring - 93 - -10 -32 - - -
items, m 2)
Operating profit 14 11 22 14 9 -2 14 17
excl. non-recurring items, m
% of sales 4.9 3.5 5.8 4.0 2.7 -0.7 4.1 5.4
Production, plywood 259 209 239 248 245 189 245 237
1,000 m3
Production, sawn 591 486 581 556 592 475 455 495
timber 1,000 m3
Q1-Q4/ Q1-Q4/ Q1-Q4/
06 05 04
Sales, m 1,321 1,290 1,492
EBITDA, m 1) 104 86 80
% of sales 7.9 6.7 5.4
Depreciation, -43 -75 -73
amortization and
impairment charges,m
Operating profit, m 144 6 111
% of sales 10.9 0.5 7.4
Non-recurring 83 -32 83
items, m 2)
Operating profit excl. 61 38 28
non-recurring items
and amortization of goodwill, m
% of sales 4.6 2.9 1.9
Production, plywood 955 916 969
1,000 m3
Production, sawn 2,214 2,017 2,276
timber 1,000 m3
Capital employed 616 660 748
(average), m
ROCE (excl. 9.9 5.8 3.7
non-recurring items), %
1) EBITDA is operating profit before depreciation, amortization and impairment
charges and excluding non-recurring items.
2) Non-recurring items in the first quarter 2006 include a loss of 10 million
from the sale of the Loulay plywood mill, and in the third quarter, a capital
gain of 93 million on the sale of Puukeskus. Non-recurring items in 2005
include impairment charges of 25 million relating to the Group's Finnish
sawmills and a provision of 7 million relating mainly to restructuring of the
sales network.
Q4 of 2006 compared with Q4 of 2005
Operating profit, excluding non-recurring items, for Wood Products increased to
14 million ( 9 million). Sales for the division came to 287 million ( 331
million). The plywood production was 259,000 (245,000) cubic metres and sawn
timber production 591,000 (592,000) cubic metres.
The profitability of plywood was good. The profitability of sawmilling improved,
and its operating profit was positive. Due to the exceptionally warm autumn,
availability of wood weakened and capacity could not be utilized in an optimal
manner.
2006 compared with 2005
The division's operating profit, excluding non-recurring items, increased to 61
million ( 38 million). Sales came to 1,321 million ( 1,290 million). Plywood
production was 955,000 cubic metres (916,000 cubic metres) and sawn timber
production 2,214,000 cubic metres (2,017,000 cubic metres).
Plywood enjoyed good profitability. Sawmilling improved its profitability, and
operating profit turned positive due to higher prices and increased deliveries.
Sawn timber production was higher than in 2005, mainly as a result of the
increased volumes from the Pestovo sawmill in Russia.
Sale of the building materials merchant Puukeskus Oy took place at the end of
August. The annual sales of Puukeskus were approximately 400 million.
Markets
Birch and spruce plywood demand continued to be strong in all markets. Plywood
prices increased slightly from their 2005 levels. Markets for veneers and further
processed goods were solid. Redwood and whitewood sawn timber markets improved,
and prices increased. The supply of logs tightened, causing upward pressure on
prices.
Other Operations
m Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
06 06 06 06 05 05 05 05
Sales 1) 162 143 126 140 133 111 136 137
EBITDA 2) 69 23 32 66 55 32 37 36
Depreciation, -8 -6 -8 -4 -5 -4 -7 -6
amortization and impairment charges
Operating profit
Forestry 3) 23 20 -82 20 20 17 5 22
Energy Department, 36 - 18 40 42 23 41 29
Finland
Other and -9 -19 27 -7 -60 -7 -6 -11
eliminations
Operating profit, total 50 1 -37 53 2 33 40 40
Non-recurring items 4) -6 -1 41 -5 -57 - - -
Operating profit, 56 2 -78 58 59 33 40 40
excluding non-recurring items
m Q1-Q4/ Q1-Q4/ Q1-Q4/
06 05 04
Sales 1) 571 517 538
EBITDA 2) 190 160 138
Depreciation, -26 -22 -38
amortization and impairment charges
Operating profit
Forestry 3) -19 64 66
Energy Department, 94 135 118
Finland
Other and -8 -84 150
eliminations
Operating profit, total 67 115 334
Non-recurring items 4) 29 -57 219
Operating profit, 38 172 115
excluding non-recurring items
Capital employed 3,343 3,501 3,355
at the end of period (including associated companies)
1) Includes sales outside the Group.
2) EBITDA is operating profit before depreciation, amortization and impairment
charges and excluding the change in value of biological assets and non-recurring
items.
3) The second quarter of 2006 includes a decrease of 102 million in the fair
value of biological assets and wood harvested.
4) Non-recurring items in 2006 include in the second quarter the capital gain of
41 million of the Group head office real estate, and in the first quarter, the
donation of 5 million to a UPM-Kymmene Cultural Foundation, and in 2005 they
include a fine of 57 million imposed by the European Commission.
Q4 of 2006 compared with Q4 of 2005
Excluding non-recurring items, operating profit for Other Operations was 56
million ( 59 million). Sales were 162 million ( 133 million). The cost of
wood raw material harvested from the Group's forests was 27 million ( 12
million). The increase in the fair value of biological assets (growing trees) was
22 million ( 21 million).
Operating profit of the Energy Department in Finland was 36 million ( 42
million). Hydropower availability was significantly lower than the previous year
even if the water reservoirs in the Nordic countries returned to their normal
levels for the season, or even higher, by the end of the year.
2006 compared with 2005
Excluding non-recurring items, the operating profit for Other Operations in 2006
was 38 million ( 172 million). Sales totalled 571 million ( 517 million).
The cost of wood raw material harvested from the Group's own forests was 107
million ( 34 million). The decrease in the fair value of biological assets
(growing trees) was 19 million (increase of 68 million).
Fellings from the Group's own forests increased as planned to compensate
transient shortage in wood supply stemming from the change in Finnish forest
taxation. Additionally, during the fourth quarter there were difficulties in
reaching the felling sites in Finland and Russia, due to unusually warm and rainy
weather. The decrease in the fair value of biological assets was mainly due to an
increase of half a percentage point, to 7.5%, in the discount rate applied in
forest valuation.
The operating profit of the Energy Department in Finland was 94 million
( 135 million). Availability of hydropower was significantly lower than in the
comparison period and costs of energy increased. Average energy prices in Nord
Pool were substantially higher.
Associated companies and joint ventures
m Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
06 06 06 06 05 05 05 05
Share of result after tax
Oy Metsä-Botnia Ab 18 24 13 14 19 13 -10 14
Pohjolan Voima Oy -9 -7 -5 7 - -1 -11 12
Other - 1 - 5 -5 3 2 5
Total 9 18 8 26 14 15 -19 31
m Q1-Q4/ Q1-Q4/ Q1-Q4/
06 05 04
Share of result after tax
Oy Metsä-Botnia Ab 69 36 56
Pohjolan Voima Oy -14 - -5
Other 6 5 7
Total 61 41 58
The first quarter of 2005 includes non-recurring income of 12 million, and the
fourth quarter charges of 3 million, both relating to valuation of the assets
of Pohjolan Voima Oy.
The average price of long-fibre (NBSK) pulp was USD 675/tonne, up by 10% on last
year. The price for short-fibre (BHKP) pulp was USD 638/tonne, up 10%. The
corresponding prices in euros were 535/tonne for NBSK (up 10%) and 508/tonne for
BHKP (up 11%).
Deliveries and production
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
06 06 06 06 05 05 05 05
Deliveries
Magazine papers, 1,288 1,227 1,148 1,098 1,308 1,048 1,020 1,110
1,000 t
Newsprint, 1,000 t 697 666 660 654 736 593 631 632
Fine and speciality 907 878 884 881 863 793 684 720
papers, 1,000 t
Converting papers, - - - - - 10 8 16
1,000 t
Deliveries total 2,892 2,771 2,692 2,633 2,907 2,444 2,343 2,478
Production
Paper, 1,000 t 2,858 2,858 2,744 2,691 2,801 2,840 1,929 2,653
Plywood, 1,000 m3 259 209 239 248 245 189 245 237
Sawn timber, 1,000 m3 614 526 623 594 618 508 493 528
Chemical pulp, 1,000 t 547 506 498 544 539 516 237 548
Q1-Q4/ Q1-Q4/ Q1-Q4/
06 05 04
Deliveries
Magazine papers, 4,761 4,486 4,940
1,000 t
Newsprint, 1,000 t 2,677 2,592 2,719
Fine and speciality 3,550 3,060 3,074
papers, 1,000 t
Converting papers, - 34 59
1,000 t
Deliveries total 10,988 10,172 10,792
Production
Paper, 1,000 t 11,151 10,223 10,886
Plywood, 1,000 m3 955 916 969
Sawn timber, 1,000 m3 2,357 2,147 2,409
Chemical pulp, 1,000t 2,095 1,840 2,243
Helsinki, 1 February 2007
UPM-Kymmene Corporation
Board of Directors
Financial information
This financial review is unaudited
Consolidated income statement
m Q4/ Q4/ Q1-Q4/ Q1-Q4/ Q1-Q4/
2006 2005 2006 2005 2004
(As (As (As
revised) revised)revised)
Sales 2,583 2,574 10,022 9,348 9,820
Other operating 20 27 231 117 168
income
Costs and expenses -2,141 -2,241 -8,514 -8,092 -8,254
Change in fair value -5 9 -126 34 15
of biological assets and wood harvested
Share of results of 9 14 61 41 58
associated companies and
joint ventures
Depreciation, -219 -441 -1,138 -1,130 -1,122
amortization and
impairment charges
Operating profit 247 -58 536 318 685
Gains on -2 - -2 90 1
available-for-sale investments, net
Exchange rate and 4 - 18 -4 48
fair value gains and losses
Interest and other -46 -33 -185 -147 -178
finance costs, net
Profit before tax 203 -91 367 257 556
Income taxes -8 14 -29 4 364
Profit for the period 195 -77 338 261 920
Attributable to:
Equity holders of 196 -76 340 263 919
the parent company
Minority interest -1 -1 -2 -2 1
195 -77 338 261 920
Earnings per share for profit attributable to
the equity holders of the parent company
Basic earnings per 0.37 -0.15 0.65 0.50 1.76
share,
Diluted earnings 0.38 -0.15 0.65 0.50 1.75
per share,
Consolidated balance sheet
m 31.12. 31.12.
2006 2005
ASSETS
Non-current assets
Goodwill 1,514 1,514
Other intangible assets 461 535
Property, plant and equipment 6,500 7,316
Investment property 30 35
Biological assets 1,037 1,174
Investments in associated 1,177 1,034
companies and joint ventures
Available-for-sale investments 127 153
Non-current financial assets 74 170
Deferred tax assets 362 352
Other non-current assets 73 38
11,355 12,321
Current assets
Inventories 1,255 1,256
Trade and other receivables 1,657 1,653
Income tax receivables 3 28
Cash and cash equivalents 199 251
3,114 3,188
Assets held for sale - 32
Total assets 14,469 15,541
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital 890 890
Share premium reserve 826 826
Treasury shares - -3
Translation differences -89 -34
Fair value and other reserves 278 233
Retained earnings 5,366 5,415
7,271 7,327
Minority interest 18 21
Total equity 7,289 7,348
Non-current liabilities
Deferred tax liabilities 790 887
Retirement benefit obligations 427 429
Provisions 187 190
Interest-bearing liabilities 3,353 4,326
Other liabilities 13 13
4,770 5,845
Current liabilities
Current interest-bearing 992 976
liabilities
Trade and other payables 1,399 1,364
Income tax payables 19 8
2,410 2,348
Total liabilities 7,180 8,193
Total equity and liabilities 14,469 15,541
Consolidated statement of changes in equity
Attributable to equity holders of the parent
m Share Share Share Trea- Trans- Fair Re-
capital issue premium sury lation value tained
reserve shares diffe- and ear-
rences other nings
reser- 1)
ves 1)
Balance at 1 January 890 - 737 - -42 263 5,149
2004 (as revised)
Transactions with equity holders
Share options exercised 1 1 8 - - - -
Share-based compensation - - - - - 12 -
Dividend paid - - - - - - -393
Business combinations - - - - - - -
Income and expenses recognised directly in equity
Translation differences - - - - -13 - -
Other items - - - - - 1 1
Cash flow hedges
recorded in equity, - - - - - 31 -
net of tax
transferred to income - - - - - -19 -
statement, net of tax
Available-for-sale investments
gains/losses arising - - - - - 13 -
from fair valuation, net of tax
transferred to income - - - - - - -
statement, net of tax
Revision of profit - 27
on valuation of available-for-sale investments
Profit for the period - - - - - - 919
(as revised)
Balance at 31 891 1 745 - -55 328 5,676
December 2004 (as revised)
Transactions with equity holders
Share options exercised 12 -1 68 - - - -
Acquisition of - - - -151 - - -
treasury shares
Reissuance of - - - 11 - - -
treasury shares
Cancellation of -13 - 13 137 - - -137
treasury shares
Share-based - - - - - 8 -
compensation
Dividend paid - - - - - - -387
Business combinations - - - - - - -
Income and expenses recognised directly in equity
Translation differences - - - - 25 - -
Net investment hedge, - - - - -4 - -
net of tax
Cash flow hedges
recorded in equity, - - - - - -63 -
net of tax
transferred to - - - - - -2 -
income statement, net of tax
Available-for-sale investments
gains/losses arising - - - - - 51 -
from fair valuation, net of tax
transferred to - - - - - -89 -
income statement, net of tax
Profit for the period - - - - - - 263
Balance at 31 890 - 826 -3 -34 233 5,415
December 2005
Transactions with equity holders
Reissuance of - - - 3 - - 1
treasury shares
Share-based compensation - - - - - 7 -
Dividend paid - - - - - - -392
Business combinations - - - - - - -
Income and expenses recognised directly in equity
Translation differences - - - - -63 - -
Other items - - - - - -2 2
Net investment hedge, - - - - 8 - -
net of tax
Cash flow hedges
recorded in equity, - - - - - 45 -
net of tax
transferred to - - - - - -5 -
income statement, net of tax
Available-for-sale investments
gains/losses arising - - - - - - -
from fair valuation, net of tax
transferred to - - - - - - -
income statement, net of tax
Profit for the period - - - - - - 340
Balance at 31 890 - 826 - -89 278 5,366
December 2006
m Total Mino- Total
rity equity
interest
Balance at 1 6,997 32 7,029
January 2004 (as revised)
Transactions with equity holders
Share options exercised 10 - 10
Share-based compensation 12 - 12
Dividend paid -393 - -393
Business combinations - -7 -7
Income and expenses recognised directly in equity
Translation differences -13 - -13
Other items 2 - 2
Cash flow hedges
recorded in equity, 31 - 31
net of tax
transferred to -19 - -19
income statement, net of tax
Available-for-sale investments
gains/losses 13 - 13
arising from fair valuation, net of tax
transferred to - - -
income statement, net of tax
Revision of profit 27 - 27
on valuation of available-for-sale investments
Profit for the period 919 1 920
(as revised)
Balance at 31 7,586 26 7,612
December 2004 (as revised)
Transactions with equity holders
Share options exercised 79 - 79
Acquisition of -151 - -151
treasury shares
Reissuance of 11 - 11
treasury shares
Cancellation of - - -
treasury shares
Share-based compensation 8 - 8
Dividend paid -387 - -387
Business combinations - -3 -3
Income and expenses recognised directly in equity
Translation differences 25 - 25
Net investment -4 - -4
hedge, net of tax
Cash flow hedges
recorded in equity, -63 - -63
net of tax
transferred to -2 - -2
income statement, net of tax
Available-for-sale investments
gains/losses 51 - 51
arising from fair
valuation, net of tax
transferred to -89 - -89
income statement, net of tax
Profit for the period 263 -2 261
Balance at 31 7,327 21 7,348
December 2005
Transactions with equity holders
Reissuance of 4 - 4
treasury shares
Share-based compensation 7 - 7
Dividend paid -392 - -392
Business combinations - -1 -1
Income and expenses recognised directly in equity
Translation differences -63 - -63
Other items - - -
Net investment 8 - 8
hedge, net of tax
Cash flow hedges
recorded in equity, 45 - 45
net of tax
transferred to -5 - -5
income statement, net of tax
Available-for-sale investments
gains/losses - - -
arising from fair valuation, net of tax
transferred to - - -
income statement, net of tax
Profit for the period 340 -2 338
Balance at 31 7,271 18 7,289
December 2006
1) Reflects the retrospective application of new and revised International
Financial Reporting Standards.
Cash flow statement
1.1.-
31.12.
m 2006 2005 2004
(As
revi-
sed*)
Cash flow from operating activities
Profit for the period 338 261 920
Adjustments to 1,195 1,125 419
profit for the period 1)
Interest received 9 15 39
Interest paid -187 -156 -189
Dividends received 16 21 39
Other financial -18 -86 -45
items, net
Income taxes paid -159 -93 -72
Change in working 21 -234 -114
capital 2)
Net cash provided 1,215 853 997
by operating activities
Cash flow from investing activities
Acquisition of - -6 -1
subsidiary shares, net of cash
Acquisition of -68 -5 -40
shares in associated companies
Acquisition of - -22 -1
available-for-sale investments
Capital expenditure -635 -690 -630
Proceeds from 203 200 185
disposal of subsidiary shares,net of cash
Proceeds from 52 16 25
disposal of shares in associated companies
Proceeds from 3 284 -41
disposal of available-for-sale investments
Proceeds from sale 108 47 29
of fixed assets
Proceeds from 23 25 20
long-term receivables
Increase in long-term - -7 -12
receivables
Other investing - - -
cash flow
Net cash used in -314 -158 -466
investing activities
Cash flow from financing activities
Proceeds from 415 178 -
long-term liabilities
Payments of -574 -641 -224
long-term liabilities
Proceeds from -398 262 -102
(payment of) short-term borrowings, net
Share options - 78 10
exercised
Dividends paid -392 -388 -393
Purchase of own shares - -151 -
Other financing cash flow -2 74 -1
Net cash used in -951 -588 -710
financing activities
Change in cash and -50 107 -179
cash equivalents
Cash and cash 251 142 338
equivalents at the beginning of year
Foreign exchange -2 2 -17
effect on cash
Change in cash and -50 107 -179
cash equivalents
Cash and cash 199 251 142
equivalents at year-end
Notes to the consolidated cash flow statement
1) Adjustments to net profit
Taxes 29 -4 -364
Depreciation, 1,138 1,130 1,122
amortization and impairment charges
Share of results in -61 -41 -58
associated companies and joint ventures
Profits and losses -157 -48 -138
on sale of fixed assets and investments
Gains on 2 -90 -1
available-for-sale investments, net
Finance costs, net 167 151 130
Rosenlew cartel fine -57 - -
Change in the - - -269
Finnish pension system
Other adjustments 134 27 -3
1,195 1,125 419
2) Change in working capital
Inventories -60 -124 -26
Current receivables -69 -130 -203
Current non-interest 150 20 115
bearing liabilities
21 -234 -114
*) Reflects the retrospective application of new and revised International
Financial Reporting Standards.
Quarterly information
m Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/
06 06 06 06 05 05 05
Sales by segment
Magazine Papers 905 861 817 771 928 726 697
Newsprint 380 360 351 345 379 296 320
Fine and Speciality 667 626 627 640 626 574 495
Papers
Converting 323 312 316 323 297 343 346
Wood Products 287 310 378 346 331 302 343
Other Operations 162 143 126 140 133 111 136
Internal sales -141 -117 -131 -105 -120 -109 -84
Sales, total 2,583 2,495 2,484 2,460 2,574 2,243 2,253
Operating profit by segment
Magazine Papers 75 -62 -85 16 -99 35 -43
Newsprint 39 50 34 25 20 27 12
Fine and Speciality 44 50 -13 27 20 36 -17
Papers
Converting 16 12 17 19 8 36 6
Wood Products 14 104 22 4 -23 -2 14
Other Operations 50 1 -37 53 2 33 40
Share of results of 9 18 8 26 14 15 -19
associated companies and joint ventures
Operating profit 247 173 -54 170 -58 180 -7
(loss), total
% of sales 9.6 6.9 -2.2 6.9 -2.3 8.0 -0.3
Gains on -2 - - - - - 1
available-for-sale investments, net
Exchange rate and 4 -3 5 12 - 14 -15
fair value gains
and losses
Interest and other -46 -41 -52 -46 -33 -45 -29
finance costs, net
Profit (loss) 203 129 -101 136 -91 149 -50
before tax
Income taxes -8 18 -2 -37 14 -38 72
Profit (loss) for 195 147 -103 99 -77 111 22
the period
Basic earnings per 0.37 0.29 -0.20 0.19 -0.15 0.21 0.05
share,
Diluted earnings 0.38 0.28 -0.20 0.19 -0.15 0.21 0.05
per share,
Average number of 523,258 523,256 523,256 523,108 523,105 523,115 521,617
shares basic (1,000)
Average number of 526,416 525,938 525,874 525,936 524,703 524,710 522,131
shares diluted (1,000)
Non-recurring items in operating profit.
Non-recurring items in operating profit
are specified in the divisional reviews on pages 6-9.
Magazine Papers 6 -126 -133 - -156 -17 -
Newsprint -2 - -5 - -5 - -
Fine and Speciality -3 -2 -36 - -8 - -
papers
Converting - - - - 1 25 -
Wood Products - 93 - -10 -32 - -
Other Operations -6 -1 41 -5 -57 - -
Share of results of - - - - -3 - -
associated companies and joint ventures
Non-recurring items -5 -36 -133 -15 -260 8 -
in operating profit, total
Non-recurring items 6 - - - 9 - -
reported after operating profit 1)
Non-recurring items 35 20 -29 - -16 - 58
reported in taxes 2)
Non-recurring 36 -16 -162 -15 -267 8 58
items, total
Operating profit, 252 209 79 185 202 172 -7
excl. non-recurring items
% of sales 9.8 8.4 3.2 7.5 7.8 7.7 -0.3
Profit before tax, 202 165 32 151 160 141 -50
excl. non-recurring items
% of sales 7.8 6.6 1.3 6.1 6.2 6.3 -2.2
Earnings per share, 0.30 0.25 0.04 0.21 0.22 0.19 -0.07
excl. non-recurring items,
Return on equity, 8.7 7.2 1.1 6.1 5.9 5.3 neg.
excl. non-recurring items, %
Return on capital 8.7 7.1 2.7 6.4 6.5 6.0 neg.
employed, excl. non-recurring items, %
m Q1/ Q1-Q4/ Q1-Q4/ Q1-Q4/
05 06 05 04
Sales by segment
Magazine Papers 743 3,354 3,094 3,308
Newsprint 313 1,436 1,308 1,304
Fine and Speciality 539 2,560 2,234 2,286
Papers
Converting 361 1,274 1,347 1,414
Wood Products 314 1,321 1,290 1,492
Other Operations 137 571 517 538
Internal sales -129 -494 -442 -522
Sales, total 2,278 10,022 9,348 9,820
Operating profit by segment
Magazine Papers 31 -56 -76 -67
Newsprint 18 148 77 7
Fine and Speciality 46 108 85 171
Papers
Converting 20 64 70 71
Wood Products 17 144 6 111
Other Operations 40 67 115 334
Share of results of 31 61 41 58
associated companies and joint ventures
Operating profit 203 536 318 685
(loss), total
% of sales 8.9 5.3 3.4 7.0
Gains on 89 -2 90 1
available-for-sale investments, net
Exchange rate and -3 18 -4 48
fair value gains and losses
Interest and other -40 -185 -147 -178
finance costs, net
Profit (loss) 249 367 257 556
before tax
Income taxes -44 -29 4 364
Profit (loss) for 205 338 261 920
the period
Basic earnings per 0.39 0.65 0.50 1.76
share,
Diluted earnings 0.39 0.65 0.50 1.75
per share,
Average number of 520,281 523,220 522,029 523,641
shares basic (1,000)
Average number of 523,065 526,041 523,652 526,247
shares diluted (1,000)
Non-recurring items in operating profit.
Non-recurring items in operating profit
are specified in the divisional reviews on pages 6-9.
Magazine Papers - -253 -173 -104
Newsprint - -7 -5 2
Fine and Speciality - -41 -8 3
papers
Converting - - 26 2
Wood Products - 83 -32 83
Other Operations - 29 -57 219
Share of results of 12 - 9 10
associated companies and joint ventures
Non-recurring items 12 -189 -240 215
in operating profit, total
Non-recurring items 89 6 98 -
reported after operating profit 1)
Non-recurring items - 26 42 519
reported in taxes 2)
Non-recurring 101 -157 -100 734
items, total
Operating profit, 191 725 558 470
excl. non-recurring items
% of sales 8.4 7.2 6.0 4.8
Profit before tax, 148 550 399 341
excl. non-recurring items
% of sales 6.5 5.5 4.3 3.5
Earnings per share, 0.20 0.80 0.54 0.49
excl. non-recurring items,
Return on equity, 5.6 5.7 3.8 3.4
excl. non-recurring items, %
Return on capital 6.1 6.2 4.5 4.3
employed, excl. non-recurring items, %
1) Non-recurring items in the first quarter of 2005 include net gains of 89
million on sales of listed shares, and in the fourth quarter gains of 9 million
from the sale of associated companies.
2) Non-recurring items in the second quarter 2006 comprise 29 million relating
to the decrease of deferred tax assets due to the reduction of income tax rate in
Canada, in the third quarter 20 million income due to an increase in deferred
tax assets, and in the fourth quarter 35 million income primarily due to the
change in German tax legislation. Non-recurring items in the first quarter of
2005 comprise 58 million in deferred tax assets booked on the losses made by
UPM's Canadian operations and for the fourth quarter 16 million relating to the
tax status of an associated company.
Changes in property, plant and equipment
m Q1-Q4/ Q1-Q4/
2006 2005
Book value at 7,316 7,621
beginning of period
Acquired companies - 6
Capital 604 671
expenditure
Decreases -325 -118
Depreciation and -1,039 -1,049
impairment charges
Translation -56 185
difference and other changes
Book value at end 6,500 7,316
of period
Commitments and contingencies
m 31.12. 31.12.
2006 2005
Own commitments
Mortgages 92 94
On behalf of associated companies and joint ventures
Guarantees for loans 12 18
On behalf of others
Guarantees for loans 1 2
Other guarantees 5 6
Other own commitments
Leasing commitments 23 25
for the next 12 months
Leasing commitments 94 70
for subsequent periods
Other commitments 69 61
Capital commitments
m Comple- Total By 31.12. Q1-Q4/ After
tion cost 2005 2006 31.12.
2006
Pulp mill rebuild, June 2008 325 - 25 300
Kymi
New mill, UPM March 2008 88 - 8 80
Raflatac, Dixon
New bioboiler, September 2009 72 - - 72
Caledonia
PM5 quality June 2008 38 - - 38
upgrade, Jämsänkoski
PM4 rebuild, May 2007 45 - 11 34
Jämsänkoski
Notional amounts of derivative financial instruments
m 31.12. 31.12.
2006 2005
Currency derivatives
Forward contracts 4,293 4,552
Options, bought 20 -
Options, written 10 -
Swaps 570 588
Interest rate derivatives
Forward contracts 2,500 2,609
Swaps 2,566 2,856
Other derivatives
Forward contracts 13 16
Swaps 16 38
Related party (associated companies and joint ventures) transactions and balances
m Q1-Q4/Q1-Q4/
2006 2005
Sales to associated 61 43
companies
Purchases from 448 438
associated companies
Non-current - 4
receivables at end of period
Trade and other 20 21
receivables at end of period
Trade and other 23 19
payables at end of period
Key exchange rates for the euro at end of period
31.12. 30.9. 30.6. 31.3. 31.12. 30.9. 30.6.
2006 2006 2006 2006 2005 2005 2005
USD 1.3170 1.2660 1.2713 1.2104 1.1797 1.2042 1.2092
CAD 1.5281 1.4136 1.4132 1.4084 1.3725 1.4063 1.4900
JPY 156.93 149.34 145.75 142.42 138.90 136.25 133.95
GBP 0.6715 0.6777 0.6921 0.6964 0.6853 0.6820 0.6742
SEK 9.0404 9.2797 9.2385 9.4315 9.3885 9.3267 9.4259
31.3.
2005
USD 1.2964
CAD 1.5737
JPY 138.44
GBP 0.6885
SEK 9.1430
Basis of preparation
The Group has adopted the following interpretation to existing standards to its
financial statements from 1 January 2006 that have affected the amounts reported
for the current period:
IFRS 2 applies to share-based payment transactions in which the entity receives
or acquires goods or services. IFRIC 8 includes into the scope of IFRS 2
the transactions where the entity, when granting its own shares, cannot identify
the goods or services received. The interpretation is effective for annual
periods beginning on or after 1 May 2006. The Group early adopted IFRIC 8 as of
the beginning of 2006 resulting in a charge of 3 million in the first quarter.
Revised 2005 and 2004
Operating profits for 2005 and 2004 have been revised to correspond with the
current reporting format. The share of results of associated companies and joint
ventures, related to business operations, previously reported after operating
profit, is now reported in operating profit, with an effect of income of 41
million and 58 million in Q1-Q4/2005 and Q1-Q4/2004, respectively. Also from
the beginning of 2006, part of the results of derivative instruments relating to
cash flow hedges are allocated to the respective division. Comparative years have
been revised accordingly.
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, 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 4-8 of the company's annual report on
form 20-F for the year-ended 31 December, 2005 under "Item 3. Risk Factors".
UPM-Kymmene Corporation
Pirkko Harrela
Executive Vice President, Corporate Communications
DISTRIBUTION
Helsinki Exchanges
New York Stock Exchange
Main media
www.upm-kymmene.com