Botnia key figures in year 2008:
• Sales EUR 1,591 million (EUR 1,371 million)
• Operating profit EUR 209 million (EUR 186 million)
• Profit before extraordinary items EUR 176 million (EUR 173 million)
• Investments EUR 99 million (EUR 409 million)
• Return on capital employed 10.6% (10.6%)
• Equity ratio 63.4% (61.4%)
• Net gearing 36.5% (36.8%)
The figures and comparison data in the financial statements correspond to the
IFRS calculation principles. The figures have not been audited.
High raw material expenses and a rapid decline in the demand for pulp affected
he result for 2008
In 2008, Botnia Group's turnover was EUR 1,591 million (1,371), that is, 16%
higher than the year before. Operating profit increased by 12%, totalling EUR
209 million (186). The turnover and result for the year under review were
supported by the high price of pulp at the beginning of the year, and the US
dollar which strengthened during the latter part of the year. The most
significant factors weakening the result include the continuously high price of
the wood raw material and the rapid decline in pulp prices and demand occurring
in the latter part of the year.
The USD price of Northern long-fibre pulp decreased heavily in the latter part
of the year. At the end of December, the price was USD 638 (USD 870 in December
of the previous year). For short-fibre pulp, the price at the end of December
was USD 580 (USD 780 in the year before).
The return on capital employed (ROCE) remained unchanged, totalling 10.6% in
2008.
The result in the last quarter clearly decreased year on year
The sales in the last quarter totalled EUR 359.2 million (EUR 421.1 million in
July-September 2008). Operating profit decreased by 113% and was EUR -12.7
million (EUR 101.7 million in July-September 2008). The result was affected by
the rapid decline in pulp prices, the weakening demand for pulp, and the
production curtailments carried out at all mills in November and December. The
currency-denominated market prices for pulp decreased by 20% (softwood pulp)
and by 21% (hardwood pulp).
The financial position remained good
Botnia's financial position and liquidity remained good during the year under
review. In September, the forest company Forestal Oriental in Uruguay announced
a corporate bond programme totalling USD 100 million and successfully issued
the first USD 35 million series to the Uruguay market.
During the year under review, the Group's equity ratio increased to 63.4%
(61.3). Net gearing was 36.5% (36.8). Interest-bearing net debt stood at EUR
562.2 million at the end of the year (500.3).
The availability of raw material restricted pulp production, and demand
declined rapidly in the latter part of the year
At the beginning of 2008, approximately 3 million metric tons of new hardwood
pulp capacity were introduced to the market. The suppliers' pulp stocks
increased slightly in the early part of the year and, in July, turned to a
sharp growth which continued for the rest of the year.
At year-end, almost two million metric tons of old pulp capacity were closed
down in Canada and the Nordic countries due to poor timber availability and
profitability. During the year, Finnish pulp mills lost some of their price
competitiveness due to the fact that their timber prices increased more quickly
than those of competitors and that the euro strengthened particularly against
the Swedish crown and the Canadian dollar.
Pulp sales volumes rose by 20% on the year before. Pulp sales totalled
3,064,023 metric tons (2,549,491). Approximately 60% of the deliveries went to
shareholders and 40% to market customers.
The production in Uruguay exceeded its objective
During the year, Botnia produced 3,298,458 metric tons of pulp (2,616,116). In
Uruguay, the objective was exceeded by 85,000 tons, whereas Finland remained
approximately 247,000 tons behind its objective mainly due to the raw material
restrictions in the early part of the year and the production curtailments in
November and December.
In november Botnia launched statutory labour negotiations to stop production at
the Kaskinen pulp mill or to close it down. The negotiations ended in January
2009. No financial prerequisites to continue the mill's operations were found,
and production at the mill will end during the first quarter of 2009.
All Botnia's present-day mills have the right to use the PEFC (Programme for
the Endorsement of Forest Certification Schemes) label on their products. Wood
procurement, pulp production and sales all comply with the demands of the
certificate. Approximately 70 per cent of Botnia's wood procurement came from
certified forests. The majority of this was sourced from forests certified
according to the FFCS (Finnish Forest Certification System) and part came from
the forests of the Uruguay-based subsidiary, Forestal Oriental; its forests
have been certified according to the regulations of the FSC (Forest Stewardship
Council). On 22 December 2008, Botnia's Finnish mills were granted the FSC
Chain-of-Custody Controlled Wood certificate.
The production volume of the Svir Timber sawmill was 170,747 cubic metres,
which clearly fell behind the objective of 230,000 cubic metres. The reason for
this was the weak demand that continued throughout the year.
The most significant investments concerned the reduction of emissions to the
environment
The Group's capital expenditure totalled EUR 98.7 million (408.8). The sales of
fixed assets were EUR 1.8 million (0.7).
The first year of operation of the Uruguay pulp mill was a great success. The
mill achieved an annual production of 935,000 metric tons and met the tight
quality and environmental objectives.
Forestal Oriental S.A., a subsidiary of Botnia, continued to expand its
planting and harvesting capacity. At the moment, FO owns approximately 180,000
hectares of land, about 60% of which is planted or ready for planting.
The most significant investments in Finland concerned the renewal of the
automation system at the Äänekoski mill, pulp washing at the Kemi mill, and the
reduction of emissions to the air at the Rauma mill.
Ilkka Hämälä was appointed as President and CEO
Erkki Varis, President and CEO of the company since 1997, retired on 31 August
2008 after reaching the contractual pensionable age. Ilkka Hämälä, M.Sc. Eng.,
was appointed as his successor.
Outlook
Due to the low capacity utilisation rate of paper mills, the outlook for 2009
is weak. In the latter part of 2008, the price of pulp has decreased to a level
that will not enable a positive result at the Finnish mills. Capacity has to be
adjusted to meet demand, by carrying out substantial production curtailment.
The impact of the pulp capacity shut down in the last quarter of 2008 and at
the beginning of 2009 will not show until the latter part of the year after the
producers' oversupply situation has ended. In 2009, approximately 2 million
metric tons of new capacity and mill expansions will be launched. The impact of
the capacity net change in the market is close to zero in 2009.
The development of the operative efficiency of the Russian sawmill business
will be continued. The market situation for sawn timber continues to be weak.
The decrease in pulpwood export from Russia will have an impact on harvested
volumes and may cause a shortage in log availability.
In Finland, the company will continue to focus on ongoing mprovement of
cost-effectiveness and quality, and on the further development of business
processes and expertise.
Cutting down the pulp production volumes at the Finnish mills will considerably
reduce the need for the use of imported wood and will thus decrease the average
wood cost.
The Uruguay mill has achieved its designated production level and will
strengthen the company's financial outlook for 2009 with its cost efficiency.
Due to the poor result of the Finnish mills, the overall result of the Group is
expected to be weaker than in the previous year.
