UPM-Kymmene Corporation Annual Financial Statement February 5, 2008 at 12:00
Earnings per share for 2007 were EUR 0.16 (0.65 for 2006), excluding special
items EUR 1.00 (EUR 0.80). Operating profit for the year was EUR 483 (EUR 536)
million, excluding special items EUR 835 (EUR 725) million. Operating profit
for the fourth quarter was EUR 142 (EUR 247) million, excluding special items
EUR 194 (EUR 252) million. Full year results were impacted by significantly
higher than forecast cost of wood and fibrer. As a result of Profitability
Programme 2006, UPM has reduced over 1.1 million tonnes of paper capacity and
headcount by 3,200 persons.
Key figures
Q4/ Q4/ Q1-Q4/ Q1-Q4/ Q1-Q4/
2007 2006 2007 2006 2005
Sales, EUR million 2,512 2,583 10,035 10,022 9,348
EBITDA, EUR million 1) 351 467 1,546 1,678 1,428
% of sales 14.0 18.1 15.4 16.7 15.3
Operating profit, 142 247 483 536 318
EUR million
excluding special 194 252 835 725 558
items, EUR million
Profit before tax, 92 203 292 367 257
EUR million
excluding special 144 202 644 550 399
items, EUR million
Net profit for the 29 195 81 338 261
period, EUR million
Earnings per share, 0.06 0.37 0.16 0.65 0.50
EUR
excluding special 0.24 0.30 1.00 0.80 0.54
items, EUR
Diluted earnings 0.06 0.38 0.16 0.65 0.50
per share, EUR
Return on equity, % 1.7 10.8 1.2 4.6 3.5
excluding special 7.1 8.7 7.4 5.7 3.8
items, %
Return on capital 5.1 8.8 4.3 4.7 3.4
employed, %
excluding special 6.9 8.7 7.4 6.2 4.5
items, %
Gearing ratio at 59 56 59 56 66
end of period, %
Equity to assets 48.8 50.4 48.8 50.4 47.3
ratio at end of
period, %
Shareholders' 13.21 13.90 13.21 13.90 14.01
equity per share
at end of period, EUR
Net 3,973 4,048 3,973 4,048 4,836
interest-bearing
liabilities at end
of period, EUR million
Capital employed at 11,098 11,634 11,098 11,634 12,650
end of period, EUR million
Capital 173 197 708 699 749
expenditure, EUR million
Personnel at end of 26,352 28,704 26,352 28,704 31,522
period
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets, excluding the
share of results of associated companies and joint ventures, and special items.
The market in 2007
Demand for printing and writing papers in Europe remained good, showing an
increase of over 1% from the previous year. Demand for both coated and uncoated
magazine papers increased by 4%. The demand for newsprint remained good and
showed no change from the previous year. The demand for coated fine papers
increased by 2% but for uncoated fine papers decreased by 1%. In North America,
demand for printing and writing papers decreased by 5% from the previous year.
However, demand for both coated and uncoated magazine papers increased by
almost 5%. In other markets - most notably in Asia - demand for printing and
writing papers continued to grow rapidly.
Global advertising showed moderate growth in 2007. Print advertising in
newspapers and magazines grew, albeit at a slower pace. Direct mail, on the
other hand, continued its steady growth and was not threatened by the
digitalisation of media. In North America and in Europe, which together account
for about two thirds of the global advertising volume, growth was clearly
slower. The fastest growth took place in Russia and Eastern European countries
at around 15-20%.
Average market prices for magazine papers in Europe were about 3% down from the
previous year. Newsprint market prices were up 4% and uncoated fine paper reels
up 7% from last year. Prices for coated fine papers remained about the same as
last year. In North America, average US dollar prices for magazine papers were
down about 6%. In Asia, fine paper prices increased from last year.
Demand for self-adhesive labelstock diverged between the main markets: in
Europe, good demand growth continued in the first half of the year but slowed
towards the end of the year. In North America, demand growth stalled but showed
signs of improvement towards the end of the year. In Asia, demand growth
remained strong. RFID volumes continued to grow strongly.
In Wood Products, birch plywood demand continued to be strong in all markets.
Spruce plywood markets maintained a good balance. Plywood prices increased 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 during the first half of the year. After summer, the markets slowed
down first for whitewood and then also for redwood. The supply of logs
tightened and prices increased markedly.
The euro continued to strengthen against other main trading currencies. This
has lowered the profitability of exports and attracted new imports especially
in printing papers.
Changes in reporting classifications
As of the beginning of 2007, the Converting Division consists only of UPM
Raflatac and the division has been renamed as the Label Division. Walki Wisa,
which was part of the Converting Division until the end of 2006, was sold in
the second quarter of 2007. Until the disposal the unit was reported in Other
Operations. Comparative periods have been regrouped accordingly.
Earnings
Q4 of 2007 compared with Q4 of 2006
Sales for the fourth quarter of 2007 were EUR 2,512 million, 3% less than
EUR 2,583 million in the fourth quarter of 2006.
Operating profit was EUR 142 million (EUR 247 million), 5.7% of sales (9.6%).
Operating profit excluding special items was EUR 194 million, 7.7% of sales
(EUR 252 million, 9.8% of sales). Operating profit for the fourth quarter
includes charges net of EUR 52 million (EUR 5 million) as special items. The
main special items were charges of EUR 100 million related to the closure of
the Miramichi paper mill, including a EUR 19 million asset impairment and EUR
81 million other costs, and a non-taxable capital gain of EUR 58 million from
the sale of the port operators Rauma Stevedoring Ltd and Botnia Shipping Ltd.
Other special items, net of EUR 10 million, include charges of EUR 12 million
from settlements of certain class-action lawsuits raised against magazine paper
and labelstock manufacturers in the United States.
Profitability declined clearly from last year. The strong increase in the cost
of wood and recycled fibre and the adverse impact of the strengthened euro
against other main trading currencies more than offset the achieved cost
savings. Also, the average price for the Group's paper deliveries was lower
than last year. In Label Materials, the cost of expansion together with the
lower average price reduced profitability. In Wood Products, profitability
improved slightly from last year.
The change in the fair value of biological assets, net of wood harvested, was
EUR 47 million (negative EUR 5 million). The share of results of associated
companies and joint ventures was EUR 2 million (EUR 9 million).
Profit before tax was EUR 92 million (EUR 203 million) and excluding special
items EUR 144 million (EUR 202 million). In 2006, a gain of EUR 6 million from
sale of shares was reported after operating profit as a special item. Interest
and other finance costs net were EUR 46 million (EUR 46 million). Exchange rate
and fair value gains and losses resulted in a loss of EUR 4 million (a gain of
EUR 4 million).
Income taxes were EUR 63 million (EUR 8 million). Fourth quarter income taxes
include as special items charges of EUR 39 million from the decrease of
deferred tax assets in Canada, primarily due to the decrease in the tax rate.
Profit for the fourth quarter was EUR 29 million (EUR 195 million) and earnings
per share were EUR 0.06 (EUR 0.37). Earnings per share excluding special items
were EUR 0.24 (EUR 0.30).
Return on equity was 1.7% (10.8%) and return on capital employed 5.1% (8.8%).
Excluding special items, the respective figures were 7.1% (8.7%) and 6.9%
(8.7%).
2007 compared with 2006
Sales for 2007 were EUR 10,035 million and about the same as last year (EUR
10,022 million).
Operating profit was EUR 483 million (EUR 536 million), 4.8% of sales (5.3%).
Operating profit excluding special items was EUR 835 million, 8.3% of sales
(EUR 725 million, 7.2% of sales). Operating profit for 2007 includes as special
items capital gains of EUR 133 million and charges net of EUR 485 million,
totaling net charges of EUR 352 million (net charges of EUR 189 million).
In June 2007 UPM decided to close the Miramichi magazine paper mill in Canada
temporarily for nine to twelve months. However, due to poor financial
prospects, UPM decided in December 2007 to close the mill permanently. These
decisions resulted in impairment charges of EUR 41 million and other costs in
total of EUR 91 million. In June 2007 the goodwill of Magazine Papers was
tested, resulting in a charge of EUR 350 million. The primary drivers for the
impairment relate to lower-than-forecast realised magazine paper price and the
adverse development of exchange rates, especially that of the U.S. dollar.
The main capital gains reported as special items were a capital gain of EUR 42
million on the sale of the real estate company UPM-Asunnot, a EUR 29 million
non-taxable capital gain on the sale of Walki Wisa, a producer of wrappings and
composite materials for industrial applications, and a non-taxable capital gain
of EUR 58 million from the sale of the port operators Rauma Stevedoring Ltd and
Botnia Shipping Ltd.
The cost increase was approximately 3% from last year. Cost increases were
significant in wood and recovered paper and higher than was estimated in the
beginning of the year. In Finland, wood price increases were triggered by poor
forest harvesting conditions during the winter and the increase in export
duties on Russian wood. In Central Europe, alternate uses of wood competed with
fibre usage for paper making. Other variable and fixed costs remained almost
unchanged, as actions like the Profitability Programme brought savings and
increased efficiency of operations.
The euro strengthened against other major trading currencies, considerably
reducing the profitability of exports from Europe.
The profitability of Magazine Papers declined. The average paper price was
clearly lower than last year, the cost of wood fibre increased significantly
and both the euro and the Canadian dollar strengthened, reducing the
profitability of exports. Magazine paper deliveries increased slightly from
last year. The profitability of Newsprint improved. The average paper price
increased and lower cost of energy mainly compensated increases in other costs
such as cost of wood and recycled fibre. Newsprint deliveries were about the
same as last year. Fine and Speciality Papers' profitability declined due to
higher cost of wood and chemical pulp. The average paper price was slightly
higher and paper deliveries increased.
The profitability of the Label business declined. The average price was
slightly lower than last year partly due to a change in product and market mix
and costs incurred from expansion of operations.
Wood Products' profitability improved. The strong increase in log costs was
managed to be offset by higher prices and improved production efficiency.
Plywood production was limited by a shortage of birch logs.
Operating profit of Other Operations was higher than a year ago. The good
availability of hydropower improved the profitability of energy. The increase
in the fair value of biological assets, net of wood harvested, was EUR 79
million (decrease EUR 126 million).
The share of the results of associated companies and joint ventures was EUR 43
million (EUR 61 million).
Profit before tax was EUR 292 million (EUR 367 million) and excluding special
items EUR 644 million (EUR 550 million). In 2006, a gain of EUR 6 million from
the sale of shares was reported after operating profit as a special item.
Interest and other finance costs were EUR 191 million (EUR 185 million) net.
The average interest rate on borrowings increased. Exchange rate and fair value
gains and losses resulted in a loss of EUR 2 million (a gain of EUR 18
million).
Income taxes were EUR 211 million (EUR 29 million). Taxes include as special
items a charge of EUR 123 million from a reduction in the deferred tax assets
of Miramichi due to write-down of tax assets and a decrease in the income tax
rate in Canada, and as a positive item an income of EUR 25 million from the
decrease of deferred tax liabilities relating to the impairment of goodwill of
Magazine Papers. Additionally, special items in taxes include an income of EUR
27 million mainly relating to reversal of tax provisions.
The effective tax rate was 72.3% (7.8%). Excluding the effect of special items
and the decrease of tax rate in the U.K. and Germany, the effective tax rate
was 22% (24.4%).
Profit for the year was EUR 81 million (EUR 338 million) and earnings per share
were EUR 0.16 (EUR 0.65). Earnings per share excluding special items were EUR
1.00 (EUR 0.80). Operating cash flow per share was EUR 1.66 (EUR 2.32).
Return on equity was 1.2% (4.6%) and return on capital employed 4.3% (4.7%).
Excluding special items, the respective figures were 7.4% (5.7%) and 7.4%
(6.2%).
Deliveries
Paper deliveries for the year were 11,389,000 tonnes (10,988,000 tonnes).
Magazine paper deliveries were 4,848,000 tonnes (4,761,000 tonnes), newsprint
2,682,000 tonnes (2,677,000 tonnes) and fine and speciality papers 3,859,000
tonnes (3,550,000 tonnes).
Plywood deliveries were 945,000 cubic metres (931,000 cubic metres) and sawn
timber deliveries 2,325,000 cubic metres (2,457,000 cubic metres).
Financing
Cash flow from operating activities, before capital expenditure and financing,
was EUR 867 million (EUR 1,215 million). The increase in net working capital
amounted to EUR 204 million (decrease EUR 21 million), partially due to
increase of wood raw material inventories.
The gearing ratio at 31 December was 59% (56% at 31 December 2006). Net
interest-bearing liabilities at the end of the year came to EUR 3,973 million
(EUR 4,048 million). The average maturity of borrowings at year end was 6.1
years (7.1 years).
At the end of the year, the ratings for UPM's rated bonds were BBB of S&P and
Baa2 of Moody's. During the year, UPM's credit ratings were unchanged but both
rating agencies added “negative outlook” to their rating.
Personnel
In 2007, UPM had an average of 28,246 employees (31,039 employees). At the
beginning of the year the number of employees was 28,704, and at the end of the
year 26,352 resulting from a decrease of 2,352 persons. Of this, a decrease of
866 was due to the closures of production lines and rationalisations of
operations, 975 due to the sale of Walki Wisa and 650 due to the sale of the
Finnish port operators Rauma Stevedoring Ltd and Botnia Shipping Ltd. In Label
division, the number of employees increased by 139.
Capital expenditure
In 2007, capital expenditure, excluding acquisitions and share purchases, was
EUR 683 million, 6.8% of sales (EUR 631 million, 6.3% of sales). Including
acquisitions and share purchases, capital expenditure was EUR 708 million, 7.1%
of sales (EUR 699 million, 7.0%).
In April 2007, UPM decided to build a self-adhesive label materials factory in
Poland. The new production and logistics centre will serve the growing Eastern
European markets and meet increasing Europe-wide demand for filmic label
materials. The total investment cost is EUR 90 million and production is
scheduled for start-up in the 4th quarter of 2008.
In April, UPM decided to modernise and expand the birch plywood production at
its Otepää plywood mill in Estonia. The investment is worth EUR 10 million and
it will be completed in autumn 2008.
In April, UPM announced a EUR 11 million investment in the Kajaani mill in
Finland. The new application of ozone treatment will start in early 2008. The
facility uses a new method that was developed in-house and uses pine for
mechanical pulping.
In December, UPM signed a letter of intent with the Russian Sveza Group for a
50/50 joint venture company. The purpose of the joint venture is to build a
state-of-the-art forest industry facility in the Vologda region of Northwest
Russia. The facility would include a pulp mill, a sawmill and an OSB (Oriented
Strand Board) building panels mill. The total investment is estimated to be in
excess of one billion euros. The final investment decision is subject to a
satisfactory outcome of the final feasibility study and the necessary approvals
from authorities.
The biofuel-fired power plant investment for the Chapelle Darblay mill in
France was completed in February 2007. The plant combusts energy wood and all
the sludge produced in the mill's recovered paper recycling process, reducing
the mill's CO2 emissions by 95%. The amount of the investment was EUR 85
million. At Jämsänkoski mill, a EUR 45 million investment to convert coated
magazine paper machine 4 to produce label papers was completed in May. A new
bleaching line at the Tervasaari mill started up in September. The investment
amount was EUR 34 million.
Investments in production efficiency and product quality of plywood mills in
Savonlinna and Jyväskylä were completed during the year. The total investment
amount was EUR 8 million.
In Uruguay in November, UPM's associated company Metsä-Botnia started up a
hardwood pulp mill with an annual capacity of 1 million tonnes. The total cost
of the pulp mill investment was USD 1.2 billion. UPM's direct investment in the
pulp mill has been EUR 93 million.
The largest ongoing investment is the rebuild of the recovery plant at the Kymi
pulp mill. The total investment cost is EUR 325 million, and it is planned for
completion during the second quarter of 2008. A new renewable energy power
plant is under construction at the Caledonian mill in Irvine, Scotland. The
investment cost is EUR 84 million and start-up is projected for the third
quarter of 2009. At the Jämsänkoski mill, a EUR 38 million investment in the
quality of uncoated magazine paper will be completed early in 2008.
A new self-adhesive label materials factory is under constructions in Dixon,
Illinois in the United States. The value of this investment is approximately
USD 100 million and the new factory is slated for completion in the first
quarter of 2008.
Changes in the Group's structure
In June 2007, UPM sold Walki Wisa to funds managed by CapMan. The sale resulted
in a capital gain of EUR 29 million. In 2006, Walki Wisa had sales of EUR 287
million and it employed 950 people. In April, UPM sold the real estate company
UPM-Asunnot Oy to Waterhouse Real Estate Investment Oy. The sale resulted in a
capital gain of EUR 42 million. UPM-Asunnot owned around 2,000 rental
apartments in Finland. In October, UPM sold its Finnish port operators Rauma
Stevedoring Ltd and Botnia Shipping Ltd to Babcock & Brown Infrastructure. The
sale resulted in a capital gain of EUR 58 million. The port operators' combined
sales were EUR 62 million and they employed 660 employees.
Profitability improvement
In March 2006, UPM announced an extensive Profitability Programme for 2006-2008
to restore its profitability. The programme includes a reduction of
approximately 3,600 employees over the three-year period and closures of
uncompetitive paper production capacity. When finalised, the programme is
estimated to result in annual cost savings of approximately EUR 200 million.
In the first quarter of 2007, UPM stopped the production of coated magazine
paper in Jämsänkoski paper machine 4, which had an annual capacity of 120,000
tonnes and converted it to produce label papers. Tervasaari paper machine 6,
with an annual capacity of 115,000 tonnes of brown sack paper, and the
semi-alkaline pulp (SAP) line, with an annual capacity of 60,000 tonnes, were
closed in August. These closures completed the plan to close 520,000 tonnes of
magazine paper capacity, 150,000 tonnes of fine paper capacity and 115,000
tonnes of packaging paper capacity.
The annual cost savings from the programme in 2007 were approximately EUR 110
million, and the accumulated reduction in the number of employees by the end of
2007 was 3,200.
On 17 December 2007, UPM decided on further actions to improve its
profitability. The decision was made to permanently close the Miramichi 450,000
tonnes magazine paper mill in Canada, reduce 250,000 tonnes of newsprint
capacity through temporary shutdowns during 2008, reduce label paper capacity
through temporary shutdowns and rationalise self-adhesive label materials
operations by closing four old coating lines. In Wood Products, UPM started
negotiations with employees on the possible closure of the timber components
and planing mill in Luumäki, Finland. The annualised cost saving of these
actions is estimated to be in the range of EUR 50 to EUR 70 million.
Shares
In 2007, UPM shares worth, in total EUR 16,472 million were traded on the
Helsinki stock exchange (EUR 12,812 million). The highest quotation was EUR
20.59 in February and the lowest EUR 13.01 in November.
On 30 October 2007, UPM decided to terminate the listing of its American
Depositary Shares (ADS) on the New York Stock Exchange (NYSE) and seek
deregistration and termination of its reporting obligations under the
Securities Exchange Act of 1934. The last day of listing on the NYSE was 5
December 2007, and starting from 6 December 2007 the Company's ADSs have been
traded on the US over-the-counter (OTC) market under a Level 1 sponsored
American Depositary Receipt program.
The Annual General Meeting held on 27 March 2007 approved a proposal by the
Board of Directors to buy back not more than 52,000,000 own shares. The
authorisation is valid for 18 months. The meeting authorised the Board to
decide on the disposal of shares so acquired as well as on a free issue of
shares to the company itself so that the total number of shares to be issued to
the company combined with the number of own shares bought back under the
buy-back authorisation may not exceed 1/10 of the total number of shares of the
company.
On 20 August 2007, the UPM Board of Directors decided to buy back up to
16,400,000 own shares representing 3.1% of the total number of shares. The
share buy-backs were initiated on 29 August and completed on 9 November. Shares
worth EUR 266.2 million were bought at an average price of EUR 16.23. On 19
December, the Board of Directors decided to invalidate the acquired 16,400,000
shares. The invalidating of the shares was registered in the Trade Register on
21 December.
Additionally, the Annual General Meeting authorised the Board of Directors to
decide to issue shares and special rights entitling to shares of the company.
The number of new shares to be issued, including shares to be obtained under
special rights, shall be no more than 250,000,000. Of that amount, the maximum
number that can be issued to the company's shareholders based on their
pre-emptive rights is 250,000,000 shares, and the maximum amount that can be
issued deviating from the shareholders' pre-emptive rights in a directed share
issue is 100,000,000 shares. The maximum number of new shares to be issued as
part of the company's incentive programmes is 5,000,000 shares. The
authorisation is valid for no more than three years from the date of the
decision. To date, this authorisation has not been used.
The meeting also decided on granting share options in connection with the
company's share-based incentive plans. In option programmes 2007A, 2007B and
2007C, the total number of share options is no more than 15,000,000, and they
will entitle to subscribe for, in total, no more than 15,000,000 new shares of
the company. To date, this authorisation has not been used.
The meeting decided to decrease the share premium reserve as shown in the
balance sheet of the parent company as per 31 December 2006 by the amount of
EUR 776,122,940.18, and the legal reserve as shown in the balance sheet as per
31 December 2006 by the amount of EUR 187,227,209.68. The changes were executed
on 1 August. The reserves were transferred to the invested non-restricted
equity fund.
Apart from the above, the Board of Directors has no current authorisation to
issue shares, convertible bonds, or share options.
In 2007, 5,709,890 shares were subscribed for through exercising of outstanding
share options.
The number of shares entered in the Trade Register on 31 December 2007 was
512,569,320. Through the issuance authorisation and share options, the number
of shares may increase to a maximum of 794,158,420.
The company has received the following notifications from shareholders: on 13
September 2007, the Capital Group Companies, Inc. informed that the Finnish
Financial Supervision Authority has granted exemption to the Capital Group
Companies, Inc. to report its holdings and those of Capital Group
International, Inc. separately from those of Capital Research and Management
Company. Pursuant to this exemption, the aggregate holdings of Capital Group
Companies, Inc., Capital Group International, Inc. and its subsidiaries have
fallen below 5% of the shares and voting rights of UPM-Kymmene Corporation. The
aggregate holdings on 12 September 2007 were 11,388,908 shares, representing
2.15% of the shares and voting rights. On 12 September 2007, the Capital
Research and Management Company held a total of 16,035,800 UPM-Kymmene
Corporation shares, representing 3.03% of the shares and voting rights. On 7
March 2005, the Franklin Templeton Group and its affiliated investment advisors
of Franklin Resources held 10.11% of the voting rights of UPM-Kymmene
Corporation.
The listing of UPM 2005G stock options on OMX Nordic Exchange Helsinki
commenced on 1 October 2007.
Company directors
The Annual General Meeting of 27 March 2007 confirmed that the number of
members on the Board of Directors is 11.
Mr Veli-Matti Reinikkala, Head of Process Automation Division of ABB, and Mr.
Jussi Pesonen, President and CEO of UPM, were elected to the Board of Directors
as new members. In addition, Mr Michael C. Bottenheim, LL.M., MBA; Mr Berndt
Brunow, member of the Board of Oy Karl Fazer Ab; Mr Karl Grotenfelt, LL.M.,
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 Jorma Ollila, Chairman of Nokia Corporation and Royal Dutch Shell plc;
Ms Ursula Ranin, LL.M., B.Sc. (Econ.); Ms Françoise Sampermans, B.A., Psych.,
Publishing Consultant and Mr Vesa Vainio, LL.M., 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 Vesa Vainio was
re-elected as Chairman, and Mr Jorma Ollila and Mr Berndt Brunow were
re-elected as Vice Chairmen. In addition, the Board of Directors elected from
among its members an Audit Committee with Mr Michael C. Bottenheim as Chairman,
and Ms Wendy E. Lane and Veli-Matti Reinikkala as members. A Human Resources
Committee was elected with Mr Berndt Brunow as Chairman, and Mr Georg Holzhey,
Ms Ursula Ranin and Ms Françoise Sampermans as members. Furthermore, a
Nominating and Corporate Governance Committee was elected with Mr Jorma Ollila
as Chairman, and Mr Karl Grotenfelt and Mr Georg Holzhey as members.
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 now closed, and the European Commission
has tentatively closed its investigation of the European fine paper, newsprint,
magazine paper, label paper and self-adhesive labelstock markets.
UPM has been named as a defendant in multiple class-action lawsuits against
labelstock and magazine paper manufacturers in the United States. During 2007,
UPM agreed to settle the class-action lawsuits raised by direct purchasers of
labelstock and magazine paper for a total amount of approximately EUR 12
million. 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 December 2007 that would have an impact on the financial statements.
Risk factors
The announced increases in the export duty on Russian wood will gradually make
wood imports uneconomical and there is a risk that these imports cannot be
replaced in a financially sound manner. This could result in reduction of
production at the Finnish mills already during 2008.
Until the final decisions on the proposed EU Energy Package have been made
there will be uncertainties on how the proposed policies and measures will
impact the availability and cost of wood fibre for wood processing industries.
Outlook for 2008
Global demand for printing papers is forecast to grow somewhat from the 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.
UPM's deliveries are expected to be about the same as 2007 despite the
significant capacity closures. Group's average paper price in local currency is
expected to be higher for the first quarter 2008 than it was at the end of last
year.
UPM's current order books in printing papers are good. In magazine papers the
company has agreed price increases in all markets and shortened contract
validities in Europe. In newsprint contract price negotiations for 2008 in
Europe are not yet finalized.
Demand for self-adhesive labelstock is forecast to grow in Europe and Asia.
Self-adhesive labelstock prices are expected to increase first in North America
and in some Asian markets. Demand for RFID products is expected to grow at a
healthy rate.
In wood products, strong demand for birch plywood and stable demand for spruce
plywood is expected to continue. In sawn timber outlook is cautious due to
existing high inventories and slowing of the building activity in some of the
main markets.
Wood and recycled fibre costs for 2008 are forecast to be higher than full year
2007. An increase in the company's overall costs is expected to be about 2 %.
This includes cost savings from the ongoing profitability programme.
Capital expenditure is forecast to be about EUR 500 million, clearly below the
depreciation.
For the full year 2008, the Group expects its operative profitability to be
about the same as in 2007. However, the first quarter is expected to be below
the same period last year. The Group continues to seek new ways to improve its
profitability.
Dividend for 2007
The distributable funds of the company are EUR 3.2 billion. The Board of
Directors will propose to the Annual General Meeting to be held on 26 March
2008 that a dividend of EUR 0.75 per share be paid in respect of the 2007
financial year (EUR 0.75 for 2006). It is proposed that the dividend be paid on
10 April 2008.
Financial information in 2008
The Annual Report for 2007 will be published on the company's website, (main
page address: www.upm-kymmene.com) on 29 February 2008. The printed Annual
Report will be available in the week beginning 17 March 2008.
Publication schedule of interim reports:
Interim Report January-March 2008: 24 April 2008
Interim Report January-June 2008: 24 July 2008
Interim Report January-September 2008: 28 October 2008
Divisional reviews
Magazine Papers
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2007 2007 2007 2007 2006 2006 2006 2006
Sales, EUR million 811 847 798 793 905 861 817 771
EBITDA, EUR million 1) 98 116 114 113 157 155 145 113
% of sales 12.1 13.7 14.3 14.2 17.3 18.0 17.7 14.7
Depreciation, -83 -82 -443 -86 -88 -209 -210 -97
amortisation and
impairment charges, EUR million
Operating profit, -62 34 -339 27 75 -62 -85 16
EUR million
% of sales -7.6 4.0 -42.5 3.4 8.3 -7.2 -10.4 2.1
Special items, EUR -77 - -371 - 6 -126 -133 -
million 2)
Operating profit 15 34 32 27 69 64 48 16
excl. special
items, EUR million
% of sales 1.8 4.0 4.0 3.4 7.6 7.4 5.9 2.1
Deliveries, 1,000t 1,238 1,266 1,189 1,155 1,288 1,227 1,148 1,098
Q1-Q4 Q1-Q4/ Q1-Q4/
2007 2006 2005
Sales, EUR million 3,249 3,354 3,094
EBITDA, EUR million 1) 441 570 507
% of sales 13.6 17.0 16.4
Depreciation, -694 -604 -566
amortisation and
impairment charges, EUR million
Operating profit, -340 -56 -76
EUR million
% of sales -10.5 -1.7 -2.5
Special items, EUR -448 -253 -173
million 2)
Operating profit 108 197 97
excl. special
items, EUR million
% of sales 3.3 5.9 3.1
Deliveries, 1,000t 4,848 4,761 4,486
Capital employed 3,403 4,010 4,397
(average), EUR million
ROCE (excl. special 3.2 4.9 2.2
items), %
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) Special items in 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. In the fourth quarter, special
items include personnel charges 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. Special items in the second quarter of
2006 include personnel charges of EUR 20 million related to the profitability
programme, and impairment charges of EUR 113 million related to the closure of
the Voikkaa paper mill. In the third quarter, special items include personnel
charges of EUR 8 million and impairment charges of EUR 3 million of Voikkaa,
and impairment charges of EUR 115 million of Miramichi. In the fourth quarter,
special items relate primarily to the capital gain on the sale of the Rauma
power plant.
Q4 of 2007 compared with Q4 of 2006
The operating profit, excluding special items, for Magazine Papers was EUR 15
million, EUR 54 million lower than a year ago (EUR 69 million). Sales were EUR
811 million (EUR 905 million). Paper deliveries decreased by 4% to 1,238,000
(1,288,000) tonnes.
Profitability weakened compared with the same period last year. The main
reasons for the decline were lower paper prices and markedly increased fibre
costs. The euro strengthened against USD and GBP, further reducing
profitability of exports. The average price for all magazine paper deliveries
when translated into euros was over 6% lower than a year ago.
2007 compared with 2006
The operating profit, excluding special items, for Magazine Papers was EUR 108
million, EUR 89 million lower than in the previous year (EUR 197 million).
Sales decreased slightly to EUR 3,249 million (EUR 3,354 million). Paper
deliveries increased by 2% to 4,848,000 (4,761,000) tonnes.
Profitability decreased from the year 2006, due to lower paper prices, a
stronger euro and Canadian dollar against USD and higher raw material costs.
When translated into euros, the average price for all magazine paper deliveries
was approximately 5% lower than a year ago. The cost of fibre, i.e. wood,
chemical pulp and recycled paper, increased clearly from last year. On the
other hand, the efficiency of operations improved as the division maintained
delivery volumes despite significant capacity closures.
The Miramichi coated magazine paper mill in Canada, with a capacity of 450,000
t/a, was shut down permanently in December. The mill was idled in August on a
temporary basis. Closure costs reported as special items were EUR 91 million.
In June, the value of the asset of the mill, EUR 22 million, was written off as
a
special item. Additionally, the division recorded a EUR 350 million impairment
charge of the division's goodwill as a special item.
Market review
During 2007, good growth in magazine paper demand in Europe continued, partly
driven by a strong increase in demand in Eastern Europe. Demand for coated and
uncoated magazine paper increased by about 4% from that of 2006. Export of
magazine paper from Europe declined from the previous year by about 11%. The
average market price for magazine papers in Europe decreased and was 3% down
from last year's figure. In North America, demand for magazine paper increased
by approximately 5%. In North America, average USD prices for magazine papers
were about 6% lower, although they started to recover after the summer.
Newsprint
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2007 2007 2007 2007 2006 2006 2006 2006
Sales, EUR million 378 365 379 348 380 360 351 345
EBITDA, EUR million 1) 79 91 100 92 89 98 86 72
% of sales 20.9 24.9 26.4 26.4 23.4 27.2 24.5 20.9
Depreciation, -48 -47 -47 -48 -48 -48 -47 -47
amortisation and
impairment charges, EUR million
Operating profit, 36 44 53 44 39 50 34 25
EUR million
% of sales 9.5 12.1 14.0 12.6 10.3 13.9 9.7 7.2
Special items, EUR 5 - - - -2 - -5 -
million 2)
Operating profit 31 44 53 44 41 50 39 25
excl. special
items, EUR million
% of sales 8.2 12.1 14.0 12.6 10.8 13.9 11.1 7.2
Deliveries, 1,000t 702 667 683 630 697 666 660 654
Q1-Q4/ Q1-Q4/ Q1-Q4/
2007 2006 2005
Sales, EUR million 1,470 1,436 1,308
EBITDA, EUR million 1) 362 345 275
% of sales 24.6 24.0 21.0
Depreciation, -190 -190 -198
amortisation and
impairment charges, EUR million
Operating profit, 177 148 77
EUR million
% of sales 12.0 10.3 5.9
Special items, EUR 5 -7 -5
million 2)
Operating profit 172 155 82
excl. special
items, EUR million
% of sales 11.7 10.8 6.3
Deliveries, 1,000t 2,682 2,677 2,592
Capital employed 1,872 1,921 1,900
(average), EUR million
ROCE (excl. special 9.2 8.1 4.3
items), %
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 5
million related mainly to other restructuring measures. Special items booked
for 2006 relate mainly to the profitability programme.
Q4 of 2007 compared with Q4 of 2006
For Newsprint, operating profit, excluding special items, decreased to EUR 31
million (EUR 41 million). Sales were EUR 378 million (EUR 380 million). Paper
deliveries amounted to 702,000 tonnes (697,000 tonnes).
Profitability decreased from the previous year. This was due to higher
deliveries to overseas markets and a stronger euro against USD and GBP. The
average price for all newsprint deliveries, when translated into euros, was
slightly down on the corresponding quarter in 2006. Costs remained about the
same as the cost increase of wood and recycled paper was offset mainly by lower
energy costs.
2007 compared with 2006
Operating profit, excluding special items, for Newsprint was EUR 172 million,
EUR 17 million higher than a year ago (EUR 155 million). Sales were EUR 1,470
million (EUR 1,436 million). Paper deliveries were about the same as last year
at 2,682,000 tonnes (2,677,000 tonnes).
The main contributor to the improved profitability was the higher price of
newsprint. The average price for all newsprint deliveries when translated into
euros was over 2% higher than a year ago. The contract prices in Europe
increased by 4-5%, but overseas prices declined. Recycled paper and wood costs
increased clearly but were mainly offset by cost savings from energy
investments.
In December, UPM announced a plan for production curtailments of 250,000 tonnes
by closing temporarily PM4 in Kajaani, Finland and PM4 in Steyrermühl, Austria
during 2008.
Market review
The demand for standard and improved newsprint was flat in Europe when compared
with last year. Partly due to the strong euro, the prices in Europe compared to
overseas deliveries were higher. Consequently imports to Europe increased and
exports from Europe decreased. The average market price for standard newsprint
was about 5% higher in Europe than a year ago.
As a response to weaker market balance, capacity closures and production
curtailments were announced.
Fine and Speciality Papers
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2007 2007 2007 2007 2006 2006 2006 2006
Sales, EUR million 718 694 686 699 667 626 627 640
EBITDA, EUR million 1) 66 82 92 85 104 106 76 82
% of sales 9.2 11.8 13.4 12.2 15.6 16.9 12.1 12.8
Depreciation, -54 -53 -53 -53 -56 -55 -71 -55
amortisation and
impairment charges, EUR million
Operating profit, 12 29 39 32 44 50 -13 27
EUR million
% of sales 1.7 4.2 5.7 4.6 6.6 8.0 -2.1 4.2
Special items, EUR - - - - -3 -2 -36 -
million 2)
Operating profit 12 29 39 32 47 52 23 27
excl. special
items, EUR million
% of sales 1.7 4.2 5.7 4.6 7.0 8.3 3.7 4.2
Deliveries, 1,000t 977 954 960 968 907 878 884 881
Q1-Q4/ Q1-Q4/ Q1-Q4/
2007 2006 2005
Sales, EUR million 2,797 2,560 2,234
EBITDA, EUR million 1) 325 368 309
% of sales 11.6 14.4 13.8
Depreciation, -213 -237 -224
amortisation and
impairment charges, EUR million
Operating profit, 112 108 85
EUR million
% of sales 4.0 4.2 3.8
Special items, EUR - -41 -8
million 2)
Operating profit 112 149 93
excl. special
items, EUR million
% of sales 4.0 5.8 4.2
Deliveries, 1,000t 3,859 3,550 3,060
Capital employed 2,821 2,760 2,843
(average), EUR million
ROCE (excl. special 4.0 5.4 3.3
items), %
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges and excluding special items.
2) In 2006, special items include personnel and impairment charges related to
the profitability programme.
Q4 of 2007 compared with Q4 of 2006
The operating profit, excluding special items, for Fine and Speciality Papers
came to EUR 12 million, which is EUR 35 million less than last year (EUR 47
million). Sales increased from EUR 667 million to EUR 718 million. Paper
deliveries increased by 8% to 977,000 (907,000) tonnes.
The profitability of the division weakened mainly as a result of higher wood
and pulp costs. The average price for all fine and speciality paper deliveries
when translated into euros was about 1% higher than a year ago. The increase in
deliveries resulted from the improved operational efficiency.
2007 compared with 2006
The operating profit, excluding special items, for Fine and Speciality Papers
was EUR 112 million, EUR 37 million lower than last year (EUR 149 million).
Sales increased from EUR 2,560 million to EUR 2,797 million. Paper deliveries
increased to 3,859,000 tonnes, 9% higher than a year ago (3,550,000 tonnes).
Profitability decreased mainly as a result of higher fibre costs. The average
price increase for all deliveries when translated into euros was about 1% up. A
stronger euro compared to USD affected mainly label papers, where the prices in
USD were unchanged. Deliveries increased as a result of efficiency
improvements, even though substantial closures of capacity took place during
2006 and 2007.
To curtail production, UPM decided in December 2007 to close temporarily two
label paper machines for 3 months in Finland, one in Tervasaari (PM5) and the
other in Jämsänkoski (PM4).
Market review
When compared to the corresponding period last year, the demand in Europe for
coated fine paper increased by about 2% while that for uncoated fine paper
remained the same. Imports of fine papers to Europe increased markedly. The
average market price for coated fine paper in Europe was flat and started to
decrease towards the end of the year. The average price for uncoated fine paper
reels was about 7% higher than last year after the steady increase during 2007.
In Asia, demand and prices for fine paper increased from last year. The good
demand for packaging papers continued. Growth in demand for label papers slowed
down from the previous year.
Label Materials
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2007 2007 2007 2007 2006 2006 2006 2006
Sales, EUR million 249 252 260 261 251 240 245 251
EBITDA, EUR million 1) 15 18 21 26 25 20 24 24
% of sales 6.0 7.1 8.1 10.0 10.0 8.3 9.8 9.6
Depreciation, -9 -8 -8 -8 -8 -9 -8 -7
amortisation and
impairment charges, EUR million
Operating profit, 10 10 13 18 17 11 16 17
EUR million
% of sales 4.0 4.0 5.0 6.9 6.8 4.6 6.5 6.8
Special items, EUR 4 - - - - - - -
million
Operating profit 6 10 13 18 17 11 16 17
excl. special
items, EUR million
% of sales 2.4 4.0 5.0 6.9 6.8 4.6 6.5 6.8
Q1-Q4/ Q1-Q4/ Q1-Q4/
2007 2006 2005
Sales, EUR million 1,022 987 859
EBITDA, EUR million 1) 80 93 71
% of sales 7.8 9.4 8.3
Depreciation, -33 -32 -30
amortisation and
impairment charges, EUR million
Operating profit, 51 61 41
EUR million
% of sales 5.0 6.2 4.8
Special items, EUR 4 - -
million
Operating profit 47 61 41
excl. special
items, EUR million
% of sales 4.6 6.2 4.8
Capital employed 439 388 368
(average), EUR million
ROCE (excl. special 10.8 15.7 11.1
items), %
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.
Q4 of 2007 compared with Q4 of 2006
The operating profit, excluding special items, for Label Materials was EUR 6
million (EUR 17 million). Sales were EUR 249 million (EUR 251 million).
The division's profitability was clearly lower than last year due to slightly
lower average prices, the stronger euro against USD and expansion costs.
Delivery volumes of self-adhesive label materials grew in the European and
North American markets. In Asia, volumes increased due to the start-up of the
new factory in China at the end of 2006 and the opening of new distribution
terminals in the region. For RFID, the sales growth continued to be strong.
2007 compared with 2006
Label Materials' operating profit, excluding special items, was EUR 47 million
(EUR 61 million). Sales increased to EUR 1,022 million (EUR 987 million).
The profitability of the division decreased from the previous year. Sales
growth was impacted by the strengthening of the euro, slightly lower prices and
a change in the product and market mix. The cost of raw materials was stable
but operating costs increased as a result of rapid expansion. In the RFID
business, strong growth in volumes continued.
In April, UPM announced that a new self-adhesive label materials factory will
be built in Wroclaw-Kobierzyce, Poland. In December, an announcement was made
on the closure of three label lines in Tampere, Finland, and of one in
Melbourne, Australia.
Market review
In Europe, the good demand continued in the first half of the year, but the
first signs of a slowdown were visible during the second half. In North
America, demand for self-adhesive label materials was unchanged in the first
half of the year but improved slightly during the second half. In the
Asia-Pacific region, demand continued to grow at a healthy rate. For RFID, the
retail, logistics and mass transit markets were the strongest in Europe, while
the media management, especially the library sector, showed the strongest
growth in the USA.
Wood Products
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2007 2007 2007 2007 2006 2006 2006 2006
Sales, EUR million 297 262 326 314 287 310 378 346
EBITDA, EUR million 1) 26 8 51 42 24 22 33 25
% of sales 8.8 3.1 15.6 13.4 8.4 7.1 8.7 7.2
Depreciation, -11 -10 -11 -10 -10 -11 -11 -11
amortisation and
impairment charges, EUR million
Operating profit, 21 -2 41 32 14 104 22 4
EUR million
% of sales 7.1 -0.8 12.6 10.2 4.9 33.5 5.8 1.2
Special items, EUR 6 - - - - 93 - -10
million 2)
Operating profit 15 -2 41 32 14 11 22 14
excl. special
items, EUR million
% of sales 5.1 -0.8 12.6 10.2 4.9 3.5 5.8 4.0
Deliveries, plywood 239 204 247 255 243 205 232 251
1,000 m3
Deliveries, sawn 520 480 637 587 598 517 622 580
timber 1,000 m3
Q1-Q4/ Q1-Q4/ Q1-Q4/
2007 2006 2005
Sales, EUR million 1,199 1,321 1,290
EBITDA, EUR million 1) 127 104 86
% of sales 10.6 7.9 6.7
Depreciation, -42 -43 -75
amortisation and
impairment charges, EUR million
Operating profit, 92 144 6
EUR million
% of sales 7.7 10.9 0.5
Special items, EUR 6 83 -32
million 2)
Operating profit 86 61 38
excl. special
items, EUR million
% of sales 7.2 4.6 2.9
Deliveries, plywood 945 931 827
1,000 m3
Deliveries, sawn 2,224 2,317 1,883
timber 1,000 m3
Capital employed 577 616 660
(average), EUR million
ROCE (excl. special 15.0 9.9 5.8
items), %
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. Special items in the first quarter of 2006 include a
loss of EUR 10 million from the sale of the Loulay plywood mill, and in the
third quarter, a capital gain of EUR 93 million on the sale of Puukeskus.
Q4 of 2007 compared with Q4 of 2006
The operating profit, excluding special items, for Wood Products was EUR 15
million (EUR 14 million). Sales increased to EUR 297 million (EUR 287 million).
Plywood deliveries were 239,000 (243,000) cubic metres in volume and sawn
timber deliveries 520,000 (598,000) cubic metres.
The profitability of Wood Products improved. Higher prices more than offset the
strong increase in the cost of wood. The profitability of plywood was better
than the previous year. Availability of birch logs was tight, causing less
optimal use of production capacity. Sawmilling profitability weakened clearly
from last year. The market balance for sawn timber weakened, causing a decline
in timber prices.
2007 compared with 2006
The operating profit, excluding special items, for Wood Products was EUR 86
million, EUR 25 million higher than last year (EUR 61 million). Sales were EUR
1,199 million (EUR 1,321 million). Excluding Puukeskus Oy, which was sold in
August 2006, sales increased from last year. Plywood deliveries were 945,000
(931,000) cubic metres and sawn timber deliveries 2,224,000 (2,317,000) cubic
metres.
The profitability of both plywood and sawn timber improved as the prices were
higher and efficiency improved. Wood costs started to increase rapidly in the
spring, which together with the deteriorating market balance weakened the
profitability of sawmilling in the second half of the year.
As a result of the weakening raw material supply situation, UPM decided on 17
October to close down the Keuruu Veneer mill in Finland. The operations will
cease in spring 2008. On 17 December, UPM announced that it will start
negotiations with employees on the possible closure of the timber components
and planing mill in Luumäki, Finland.
Market review
During 2007, birch plywood demand continued to be strong and prices increased.
Demand for spruce plywood and veneers remained solid and prices increased
slightly. In the first half of the year, redwood and whitewood sawn timber
demand was strong and prices increased. After summer, the markets slowed down
first for whitewood - partly due to the new capacity - and then during the last
quarter also for redwood. Sawn timber inventories increased in the main
markets. In the beginning of the year, the supply of logs was tight but the
situation normalised for all wood species except birch. The prices of logs were
considerably higher than a year ago.
Other Operations
EUR million Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2007 2007 2007 2007 2006 2006 2006 2006
Sales 1) 188 173 214 234 224 206 189 204
EBITDA 2) 67 51 32 60 69 27 33 70
Depreciation, -31 -6 -5 -10 -8 -9 -9 -6
amortisation and
impairment charges
Operating profit
Forestry 3) 61 43 34 28 23 20 -82 20
Energy Department, 42 23 19 28 36 - 18 40
Finland
Other and 20 - 59 -9 -10 -18 28 -5
eliminations
Operating profit, 123 66 112 47 49 2 -36 55
total
Special items 4) 10 - 71 - -6 -1 41 -5
Operating profit, 113 66 41 47 55 3 -77 60
excluding special items
EUR million Q1-Q4/ Q1-Q4/ Q1-Q4/
2007 2006 2005
Sales 1) 809 823 970
EBITDA 2) 210 199 178
Depreciation, -52 -32 -37
amortisation and
impairment charges
Operating profit
Forestry 3) 166 -19 64
Energy Department, 112 94 135
Finland
Other and 70 -5 -55
eliminations
Operating profit, 348 70 144
total
Special items 4) 81 29 -31
Operating profit, 267 41 175
excluding special items
Capital employed 3,220 3,395 3,484
at the end of period
(including associated companies)
1) Includes sales outside the Group.
2) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and special items.
3) The fourth quarter of 2007 includes an increase of EUR 47 million in the
fair value of biological assets and wood harvested. The second quarter of 2006
includes a change of EUR 102 million of the decrease in the fair value of
biological assets and wood harvested.
4) Special items in the second quarter 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, compensation charge of EUR 12 million related to class-action
lawsuits in US, impairment charges of EUR 31 million related mainly to
Miramichi's forestry and sawmilling operations, and other restructuring costs
of EUR 5 million. Special items in 2006 include in the first quarter the
donation of EUR 5 million to UPM-Kymmene Cultural Foundation, and in the second
quarter the capital gain of EUR 41 million for the sale of the Group head
office real estate.
Q4 of 2007 compared with Q4 of 2006
Excluding special items, the operating profit for Other Operations was EUR 113
million (EUR 55 million). Sales amounted to EUR 188 million (EUR 224 million).
The operating profit of forestry was EUR 61 million (EUR 23 million). The
price of wood increased significantly. The cost of wood raw material
harvested from the Group's forests was EUR 27 million (EUR 27 million) and
the increase in the fair value of biological assets (growing trees) was
EUR 74 million (EUR 22 million).
The operating profit of the Energy Department in Finland was EUR 42 million
(EUR 36 million). Availability of hydropower was very good and on a higher
level than the previous year. The price of electricity in Nord Pool was lower
than last year.
2007 compared with 2006
Excluding special items, the operating profit of Other Operations was EUR 267
million (EUR 41 million). Sales were EUR 809 million (EUR 823 million).
The operating profit of forestry was EUR 166 million (EUR -19 million). The
cost of wood raw material harvested from the Group's forests was EUR 116
million (EUR 107 million). The increase in the fair value of biological
assets (growing trees) was EUR 195 million (decrease of EUR 19 million).
The price of wood increased markedly. The availability of wood was weak at the
beginning of the year due to unusually warm and rainy weather in Finland and
Russia, which made it more difficult to reach the felling sites. The
authorities in Russia increased the export duties for round wood in July to
EUR 10 per m3 from EUR 4. Fellings from own forests remained on a high level.
The operating profit of the Energy Department in Finland was EUR 112 million
(EUR 94 million). The good availability of hydropower and the decrease in
emission right prices reduced the costs of electricity generation. On the
other hand, electricity prices in Nord Pool were significantly lower than in
the previous year.
The sale of the real estate company UPM-Asunnot was concluded in April.
The sale of WalkiWisa was concluded in June.
In October, UPM sold port operators Rauma Stevedoring Ltd and Botnia Shipping
Ltd to Babcock & Brown Infrastructure (BBI) for approximately EUR 90 million.
Associated companies and joint ventures
EUR million Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2007 2007 2007 2007 2006 2006 2006 2006
Share of result after tax
Oy Metsä-Botnia Ab 6 19 12 21 18 24 13 14
Pohjolan Voima Oy -4 -5 -5 - -9 -7 -5 7
Other - - -1 - - 1 - 5
Total 2 14 6 21 9 18 8 26
EUR million Q1-Q4/ Q1-Q4/ Q1-Q4/
2007 2006 2005
Share of result after tax
Oy Metsä-Botnia Ab 58 69 36
Pohjolan Voima Oy -14 -14 -
Other -1 6 5
Total 43 61 41
Deliveries
Q4/ Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/
2007 2007 2007 2007 2006 2006 2006 2006
Deliveries
Magazine papers, 1,238 1,266 1,189 1,155 1,288 1,227 1,148 1,098
1,000 t
Newsprint, 1,000 t 702 667 683 630 697 666 660 654
Fine and speciality 977 954 960 968 907 878 884 881
papers, 1,000 t
Converting papers, 1,000 t
Paper deliveries 2,917 2,887 2,832 2,753 2,892 2,771 2,692 2,633
total
Wood products deliveries
Plywood, 1,000 m3 239 204 247 255 243 205 232 251
Sawn timber, 1,000 m3 537 505 666 617 621 557 663 616
Q1-Q4/ Q1-Q4/ Q1-Q4/
2007 2006 2005
Deliveries
Magazine papers, 4,848 4,761 4,486
1,000 t
Newsprint, 1,000 t 2,682 2,677 2,592
Fine and speciality 3,859 3,550 3,060
papers, 1,000 t
Converting papers, 34
1,000 t
Paper deliveries 11,389 10,988 10,172
total
Wood products deliveries
Plywood, 1,000 m3 945 931 827
Sawn timber, 1,000 m3 2,325 2,457 2,016
Helsinki, 5 February 2008
UPM-Kymmene Corporation
Board of Directors
Financial information
This financial review is unaudited
Consolidated income statement
EUR million Q4/ Q4/ Q1-Q4/ Q1-Q4/ Q1-Q4/
2007 2006 2007 2006 2005
Sales 2,512 2,583 10,035 10,022 9,348
Other operating 87 20 200 231 117
income
Costs and expenses -2,270 -2,141 -8,650 -8,514 -8,092
Change in fair 47 -5 79 -126 34
value of biological assets
and wood harvested
Share of results of 2 9 43 61 41
associated companies
and joint ventures
Depreciation, -236 -219 -1,224 -1,138 -1,130
amortisation and
impairment charges
Operating profit 142 247 483 536 318
Gains on - -2 2 -2 90
available-for-sale
investments, net
Exchange rate and -4 4 -2 18 -4
fair value gains and losses
Interest and other -46 -46 -191 -185 -147
finance costs, net
Profit before tax 92 203 292 367 257
Income taxes -63 -8 -211 -29 4
Profit for the period 29 195 81 338 261
Attributable to:
Equity holders of 32 196 85 340 263
the parent company
Minority interest -3 -1 -4 -2 -2
29 195 81 338 261
Earnings per share for profit attributable to the equity holders of
the parent company
Basic earnings per 0.06 0.37 0.16 0.65 0.50
share, EUR
Diluted earnings 0.06 0.38 0.16 0.65 0.50
per share, EUR
Consolidated balance sheet
EUR million 31.12.2007 31.12.2006
ASSETS
Non-current assets
Goodwill 1,163 1,514
Other intangible assets 392 461
Property, plant and equipment 6,179 6,500
Investment property 14 30
Biological assets 1,095 1,037
Investments in associated 1,193 1,177
companies and joint ventures
Available-for-sale investments 116 127
Non-current financial assets 82 74
Deferred tax assets 284 362
Other non-current assets 121 73
10,639 11,355
Current assets
Inventories 1,342 1,255
Trade and other receivables 1,717 1,657
Income tax receivables 18 3
Cash and cash equivalents 237 199
3,314 3,114
Total assets 13,953 14,469
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent
Share capital 890 890
Share premium reserve - 826
Translation differences -158 -89
Fair value and other reserves 193 278
Reserve for invested 1,067 -
non-restricted equity
Retained earnings 4,778 5,366
6,770 7,271
Minority interest 13 18
Total equity 6,783 7,289
Non-current liabilities
Deferred tax liabilities 745 790
Retirement benefit obligations 441 427
Provisions 171 187
Interest-bearing liabilities 3,384 3,353
Other liabilities 12 13
4,753 4,770
Current liabilities
Current interest-bearing 931 992
liabilities
Trade and other payables 1,443 1,399
Income tax payables 43 19
2,417 2,410
Total liabilities 7,170 7,180
Total equity and liabilities 13,953 14,469
Consolidated statement of changes in equity
EUR million Attributable to equity holders of the parent
Share Share Treasury Transl- Fair
capital premium shares ation value and
reserve differences other
reserves
Balance at 1 890 826 -3 -34 233
January 2006
Translation differences - - - -63 -
Other items - - - - -2
Net investment hedge, - - - 8 -
net of tax
Cash flow hedges
fair value gains/losses, - - - - 45
net of tax
transfers from equity, - - - - -5
net of tax
Available-for-sale investments
fair value gains/losses, - - - - -
net of tax
transfers to income - - - - -
statement, net of tax
Profit of the period - - - - -
Total recognised income - - - -55 38
and expence for the period
Reissuance of treasury - - 3 - -
shares
Share-based compensation - - - - 7
Dividend paid - - - - -
Business combinations - - - - -
Total of other changes - - 3 - 7
in equity
Balance at 31 890 826 - -89 278
December 2006
Translation differences - - - -69 -
Net investment hedge, - - - - -
net of tax
Cash flow hedges
fair value gains/losses, - - - - 68
net of tax
transfers from equity, - - - - -41
net of tax
Available-for-sale investments
fair value gains/losses, - - - - -
net of tax
transfers to income - - - - -1
statement, net of tax
Profit of the period - - - - -
Total recognised income - - - -69 26
and expence for the period
Share options exercised - - - - -
Acquisition of - - -266 - -
treasury shares
Cancellation of - - 266 - -
treasury shares
Share-based compensation, - - - - 13
net of tax
Dividend paid - - - - -
Business combinations - - - - -
Transfers and others - -826 - - -124
Total of other - -826 - - -111
changes in equity
Balance at 31 890 - - -158 193
December 2007
EUR million Attributable to equity holders
of the parent
Reserve Retained Total Minority Total
for invested earnings interest equity
non-restricted 1)
equity
Balance at 1 5,415 7,327 21 7,348
January 2006
Translation differences - - -63 - -63
Other items - 2 - - -
Net investment hedge, - - 8 - 8
net of tax
Cash flow hedges
fair value gains/losses, - - 45 - 45
net of tax
transfers from equity, - - -5 - -5
net of tax
Available-for-sale investments
fair value gains/losses, - - - - -
net of tax
transfers to income - - - - -
statement, net of tax
Profit of the period - 340 340 -2 338
Total recognised income - 342 325 -2 323
and expence for the period
Reissuance of treasury - 1 4 - 4
shares
Share-based compensation - - 7 - 7
Dividend paid - -392 -392 - -392
Business compensations - - - -1 -1
Total of other changes - -391 -381 -1 -382
in equity
Balance at 31 - 5,366 7,271 18 7,289
December 2006
Translation differences - - -69 - -69
Net investment hedge, - - - - -
net of tax
Cash flow hedges
fair value gains/losses, - - 68 - 68
net of tax
transfers from equity, - - -41 - -41
net of tax
Available-for-sale investments
fair value gains/losses, - - - - -
net of tax
transfers to income - - -1 - -1
statement, net of tax
Profit of the period - 85 85 -4 81
Total recognised income - 85 42 -4 38
and expence for the period
Share options exercised 104 - 104 - 104
Acquisition of - - -266 - -266
treasury shares
Cancellation of - -266 - - -
treasury shares
Share-based compensation, - - 13 - 13
net of tax
Dividend paid - -392 -392 - -392
Business compensations - - - -1 -1
Transfers and others 963 -15 -2 - -2
Total of other 1,067 -673 -543 -1 -544
changes in equity
Balance at 31 1,067 4,778 6,770 13 6,783
December 2007
Cash flow statement
1.1. - 31.12.
EUR million 2007 2006 2005
Cash flow from operating activities
Profit for the period 81 338 261
Adjustments to profit for the 1,390 1,195 1,125
period 1)
Interest received 4 9 15
Interest paid -191 -187 -156
Dividends received 23 16 21
Other financial items, net -72 -18 -86
Income taxes paid -164 -159 -93
Change in working capital 2) -204 21 -234
Net cash provided 867 1,215 853
by operating activities
Cash flow from investing activities
Acquisition of subsidiary shares, - - -6
net of cash
Acquisition of shares in -25 -68 -5
associated companies
Acquisition of available-for-sale - - -22
investments
Capital expenditure -673 -635 -690
Proceeds from disposal of 205 203 200
subsidiary shares,net of cash
Proceeds from disposal of shares 2 52 16
in associated companies
Proceeds from disposal of 3 3 284
available-for-sale investments
Proceeds from sale of fixed assets 71 108 47
Proceeds from long-term receivables 1 23 25
Increase in long-term receivables -9 - -7
Net cash used in investing activities -425 -314 -158
Cash flow from financing activities
Proceeds from long-term liabilities 965 415 178
Payments of long-term liabilities -879 -574 -641
Proceeds from (payment of) 66 -398 262
short-term borrowings, net
Share options exercised 104 - 78
Dividends paid -392 -392 -388
Purchase of own shares -266 - -151
Other financing cash flow - -2 74
Net cash used in -402 -951 -588
financing activities
Change in cash and cash 40 -50 107
equivalents
Cash and cash equivalents at the 199 251 142
beginning of year
Foreign exchange effect on cash -2 -2 2
Change in cash and cash equivalents 40 -50 107
Cash and cash equivalents 237 199 251
at year-end
Notes to the consolidated cash flow statement
1) Adjustments to net profit
Taxes 211 29 -4
Depreciation, amortisation and 1,224 1,138 1,130
impairment charges
Share of results in associated -43 -61 -41
companies and joint ventures
Profits and losses on sale of -157 -157 -48
fixed assets and investments
Gains on available-for-sale -2 2 -90
investments, net
Finance costs, net 193 167 151
Rosenlew cartel fine - -57 -
Other adjustments -36 134 27
1,390 1,195 1,125
2) Change in working capital
Inventories -152 -60 -124
Current receivables -129 -69 -130
Current non-interest bearing 77 150 20
liabilities
-204 21 -234
Quarterly information
EUR million Q4/07 Q3/07 Q2/07 Q1/07 Q4/06
Sales by segment 1)
Magazine Papers 811 847 798 793 905
Newsprint 378 365 379 348 380
Fine and Speciality Papers 718 694 686 699 667
Label Materials 249 252 260 261 251
Wood Products 297 262 326 314 287
Other Operations 188 173 214 234 224
Internal sales -129 -126 -126 -130 -131
Sales, total 2,512 2,467 2,537 2,519 2,583
Operating profit by segment 1)
Magazine Papers -62 34 -339 27 75
Newsprint 36 44 53 44 39
Fine and Speciality Papers 12 29 39 32 44
Label Materials 10 10 13 18 17
Wood Products 21 -2 41 32 14
Other Operations 123 66 112 47 49
Share of results of 2 14 6 21 9
associated companies and joint ventures
Operating profit 142 195 -75 221 247
(loss), total
% of sales 5.7 7.9 -3.0 8.8 9.6
Gains on available-for-sale - - - 2 -2
investments, net
Exchange rate and -4 -9 8 3 4
fair value gains and losses
Interest and other -46 -42 -54 -49 -46
finance costs, net
Profit (loss) before tax 92 144 -121 177 203
Income taxes -63 -25 -77 -46 -8
Profit (loss) for the period 29 119 -198 131 195
Basic earnings per 0.06 0.23 -0.38 0.25 0.37
share, EUR
Diluted earnings 0.06 0.23 -0.38 0.25 0.38
per share, EUR
Average number of 514,085 527,012 527,111 523,261 523,258
shares basic (1,000)
Average number of 515,322 529,530 530,980 527,086 526,416
shares diluted (1,000)
Special items in operating profit
Special items in operating profit are specified in the divisionalreviews on
pages 7-12.
Magazine Papers -77 - -371 - 6
Newsprint 5 - - - -2
Fine and Speciality Papers - - - - -3
Label Materials 4 - - - -
Wood Products 6 - - - -
Other Operations 10 - 71 - -6
Share of results of - - - - -
associated companies and joint ventures
Special items in -52 - -300 - -5
operating profit, total
Special items reported - - - - 6
after operating profit
Special items -39 - -32 - 35
reported in taxes
Special items, total -91 - -332 - 36
Operating profit, 194 195 225 221 252
excl. special items
% of sales 7.7 7.9 8.9 8.8 9.8
Profit before tax, 144 144 179 177 202
excl. special items
% of sales 5.7 5.8 7.1 7.0 7.8
Earnings per share, 0.24 0.23 0.28 0.25 0.30
excl. special items, EUR
Return on equity, 7.1 6.9 8.5 7.3 8.7
excl. special items, %
Return on capital 6.9 6.8 8.3 7.9 8.7
employed, excl. special items, %
1) Segment classification has been changed, see page 2.
EUR million Q3/06 Q2/06 Q1/06 Q1-Q4/ Q1-Q4/ Q1-Q4/
07 06 05
Sales by segment 1)
Magazine Papers 861 817 771 3,249 3,354 3,094
Newsprint 360 351 345 1,470 1,436 1,308
Fine and Speciality 626 627 640 2,797 2,560 2,234
Papers
Label Materials 240 245 251 1,022 987 859
Wood Products 310 378 346 1,199 1,321 1,290
Other Operations 206 189 204 809 823 970
Internal sales -108 -123 -97 -511 -459 -407
Sales, total 2,495 2,484 2,460 10,035 10,022 9,348
Operating profit by segment 1)
Magazine Papers -62 -85 16 -340 -56 -76
Newsprint 50 34 25 177 148 77
Fine and Speciality 50 -13 27 112 108 85
Papers
Label Materials 11 16 17 51 61 41
Wood Products 104 22 4 92 144 6
Other Operations 2 -36 55 348 70 144
Share of results of 18 8 26 43 61 41
associated companies and joint ventures
Operating profit 173 -54 170 483 536 318
(loss), total
% of sales 6.9 -2.2 6.9 4.8 5.3 3.4
Gains on available-for- - - - 2 -2 90
sale investments, net
Exchange rate and -3 5 12 -2 18 -4
fair value gains and losses
Interest and other -41 -52 -46 -191 -185 -147
finance costs, net
Profit (loss) 129 -101 136 292 367 257
before tax
Income taxes 18 -2 -37 -211 -29 4
Profit (loss) for 147 -103 99 81 338 261
the period
Basic earnings per 0.29 -0.20 0.19 0.16 0.65 0.50
share, EUR
Diluted earnings 0.28 -0.20 0.19 0.16 0.65 0.50
per share, EUR
Average number of 523,256 523,256 523,108 522,867 523,220 522,029
shares basic (1,000)
Average number of 525,938 525,874 525,936 525,729 526,041 523,652
shares diluted (1,000)
Special items in operating profit
Special items in operating profit are specified in the divisional reviews
on pages 7-12.
Magazine Papers -126 -133 - -448 -253 -173
Newsprint - -5 - 5 -7 -5
Fine and Speciality -2 -36 - - -41 -8
papers
Label Materials - - - 4 - -
Wood Products 93 - -10 6 83 -32
Other Operations -1 41 -5 81 29 -31
Share of results of - - - - - 9
associated companies and joint ventures
Special items in -36 -133 -15 -352 -189 -240
operating profit, total
Special items reported - - - - 6 98
after operating profit
Special items 20 -29 - -71 26 42
reported in taxes
Special items, total -16 -162 -15 -423 -157 -100
Operating profit, 209 79 185 835 725 558
excl. special items
% of sales 8.4 3.2 7.5 8.3 7.2 6.0
Profit before tax, 165 32 151 644 550 399
excl. special items
% of sales 6.6 1.3 6.1 6.4 5.5 4.3
Earnings per share, 0.25 0.04 0.21 1.00 0.80 0.54
excl. special items, EUR
Return on equity, 7.2 1.1 6.1 7.4 5.7 3.8
excl. special items, %
Return on capital 7.1 2.7 6.4 7.4 6.2 4.5
employed, excl. special items, %
1) Segment classification has been changed, see page 2.
Changes in property, plant and equipment
EUR million Q1-Q4/ Q1-Q4/
2007 2006
Book value at 6,500 7,316
beginning of period
Capital expenditure 644 604
Decreases -96 -325
Depreciation -752 -804
Impairment charges -42 -243
Impairment reversal 12 -
Translation -87 -48
difference and other changes
Book value at end 6,179 6,500
of period
Commitments and contingencies
EUR million 31.12.07 31.12.06
Own commitments
Mortgages 90 92
On behalf of associated
companies and joint ventures
Guarantees for loans 10 12
On behalf of others
Guarantees for loans - 1
Other guarantees 3 5
Other own commitments
Leasing commitments 21 23
for the next 12 months
Leasing commitments 99 94
for subsequent periods
Other commitments 70 69
Capital commitments
EUR million Completion Total cost By 31.12. Q1-Q4/ After31.12.
2006 2007 2007
Pulp mill rebuild, June 2008 325 25 201 99
Kymi
New Bioboiler, Sep 2009 84 - 11 73
Caledonian
New Poland mill, Nov 2008 90 - 23 67
UPM Raflatac
PM5 quality May 2008 38 - 14 24
upgrade, Jämsänkoski
New USA mill, UPM March 2008 75 8 51 16
Raflatac, Dixon
Notional amounts of derivative financial instruments
EUR million 31.12.2007 31.12.2006
Currency derivatives
Forward contracts 4,369 4,293
Options, bought 50 20
Options, written 60 10
Swaps 529 570
Interest rate derivatives
Forward contracts 3,642 2,500
Swaps 2,383 2,566
Other derivatives
Forward contracts 12 13
Swaps 3 16
Related party (associated companies and joint ventures) transactions and
balances
EUR million Q1-Q4/ Q1-Q4/
2007 2006
Sales to associated 130 136
companies
Purchases from 500 448
associated companies
Non-current - -
receivables at end
of period
Trade and other 29 20
receivables at end
of period
Trade and other 42 23
payables at end of period
Key exchange rates for the euro at end of period
31.12.2007 30.9.2007 30.6.2007 31.3.2007 31.12.2006
USD 1.4721 1.4179 1.3505 1.3318 1.3170
CAD 1.4449 1.4122 1.4245 1.5366 1.5281
JPY 164.93 163.55 166.63 157.32 156.93
GBP 0.7334 0.6968 0.6740 0.6798 0.6715
SEK 9.4415 9.2147 9.2525 9.3462 9.0404
30.9.2006 30.6.2006 31.3.2006
USD 1.2660 1.2713 1.2104
CAD 1.4136 1.4132 1.4084
JPY 149.34 145.75 142.42
GBP 0.6777 0.6921 0.6964
SEK 9.2797 9.2385 9.4315
Basis of preparation
This unaudited financial report has been prepared in accordance with the
accounting policies set out in International Accounting Standard 34 on Interim
Financial Reporting and in the Group's Consolidated Financial Statements for
2006.
The Group has adopted the following standard:
IFRS 7 Financial Instruments: Disclosures, and a complementary amendment to IAS
1 Presentation of Financial Statements - Capital Disclosures, effective for
annual periods beginning on or after 1 January 2007. IFRS 7 introduces new
disclosures to improve the information about financial instruments. The
amendment to IAS 1 introduces disclosures about how an entity manages its
capital. Adoption of IFRS 7 and the amendment to IAS 1 will expand disclosures
presented in the annual financial statements.
Calculation of key indicators
Return on equity, %:
Profit before tax - income taxes 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 15-17 of the company's Annual Report 2006.
UPM-Kymmene Corporation
Pirkko Harrela
Executive Vice President, Corporate Communications
DISTRIBUTION
OMX Nordic Exchange Helsinki
Main media
www.upm-kymmene.com
