UPM-Kymmene Corporation Interim Report 29 April 2009 at 09:30
UPM Interim Report 1 January-31 March 2009
Earnings per share for the first quarter were EUR -0.30 (0.20), and
excluding special items EUR -0.27 (0.19). Operating loss was EUR 95
million (profit of EUR 193 million), and excluding special items operating
loss was EUR 78 million (profit of EUR 188 million). Operating cash flow
was EUR 274 million (50 million). Cash preservation and cost-savings were
emphasised.
Key figures
Q1/ Q1/ Q1-Q4/
2009 2008 2008
Sales, EUR million 1,857 2,410 9,461
EBITDA, EUR million 1) 128 337 1,206
% of sales 6.9 14.0 12.7
Operating profit (loss), EUR -95 193 24
million
excluding special items, EUR -78 188 513
million
% of sales -4.2 7.8 5.4
Profit (loss) before tax, EUR -162 134 -201
million
excluding special items, EUR -145 129 282
million
Net profit (loss) for the -158 103 -180
period, EUR million
Earnings per share, EUR -0.30 0.20 -0.35
excluding special items, EUR -0.27 0.19 0.42
Diluted earnings per share, EUR -0.30 0.20 -0.35
Return on equity, % neg. 6.2 neg.
excluding special items, % neg. 5.9 3.4
Return on capital employed, % neg. 6.7 0.2
excluding special items, % neg. 6.5 4.6
Operating cash flow per 0.53 0.10 1.21
share, EUR
Shareholders' equity per 11.05 12.48 11.74
share at end of period, EUR
Gearing ratio at end of 72 64 71
period, %
Net interest-bearing 4,139 4,107 4,321
liabilities at end of
period, EUR million
Capital employed at end of 10,501 10,772 11,193
period, EUR million
Capital expenditure, EUR 67 137 551
million
Personnel at end of period 24,039 25,841 24,983
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.
Results
Q1 of 2009 compared with Q1 of 2008
Sales for the first quarter of 2009 were EUR 1,857 million, 23% lower than the
EUR 2,410 million in the first quarter of 2008. Sales decreased due to lower
deliveries across most of UPM's business areas.
The operating loss was EUR 95 million, -5.1% of sales (profit of EUR 193
million, 8.0% of sales). The operating loss excluding special items was EUR 78
million, -4.2% of sales (profit of EUR 188 million, 7.8% of sales). Operating
loss includes charges net of EUR 17 million as special items. UPM sold assets
related to the former Miramichi paper mill in Canada, and recorded an income of
EUR 21 million. The share of the results of associated companies includes
special charges of EUR 29 million. Other special charges of EUR 9 million
relate to restructuring measures.
Profitability declined clearly from the same period last year. The main reason
for the weaker profitability was significantly lower deliveries in most of
UPM's business areas.
UPM responded to the decline in demand and deliveries with a flexible way of
operating in all of its business areas. Through permanent cost saving measures
and temporary layoffs, the company lowered its fixed costs by EUR 70 million
from the same period last year. Furthermore, the Label business area is
restructuring its European operations.
Wood costs remained at the same high level as in the comparison period. In
addition, EBITDA and operating profit excluding special items include a write
down of EUR 43 million in wood inventories and reserves. Energy costs increased
by approximately EUR 44 million.
The average paper price in euro increased by approximately 4% from the same
period last year. The average price for label materials was clearly higher.
Timber and plywood prices declined materially.
The change in the fair value of biological assets net of wood harvested was
EUR 11 million compared with EUR 28 million a year before.
The share of results of associated companies and joint ventures was EUR 53
million negative (22 million positive). The result includes special charges of
EUR 29 million from Metsä-Botnia's Kaskinen pulp mill closure.
The loss before tax was EUR 162 million (profit of EUR 134 million) and
excluding special items the loss was EUR 145 million (profit of EUR 129
million). Interest and other finance costs, net, of EUR 58 million (49 million)
include the arrangement fee of the new syndicated revolving credit facility.
Exchange rate and fair value gains and losses resulted in a loss of EUR 9
million (10 million).
Income taxes were EUR 4 million positive (31 million negative). The impact on
taxes from special items was EUR 3 million negative (0 million).
The loss for the first quarter was EUR 158 million (profit of EUR 103 million)
and earnings per share were EUR -0.30 (0.20). Earnings per share excluding
special items were EUR -0.27 (0.19). Operating cash flow per share was EUR 0.53
(0.10).
Financing
Cash flow from operating activities, before capital expenditure and financing,
was EUR 274 million (50 million). Net working capital decreased by EUR 216
million during the period (increased by EUR 106 million).
The gearing ratio as of 31 March 2009, was 72% (64% on 31 March 2008). Net
interest-bearing liabilities at the end of the period came to EUR 4,139 million
(4,107 million).
UPM signed a new EUR 825 million revolving credit facility on 12 March 2009.
The facility matures in 2012 and replaces the EUR 1.5 billion facility that was
to mature in 2010. On 31 March 2009, UPM's cash funds and unused committed
credit facilities totalled EUR 1.7 billion.
Personnel
In the first quarter of 2009, UPM had an average of 24,199 employees (25,971).
At the beginning of the year the number of employees was 24,983, and at the end
of the first quarter it was 24,039. The reduction of 944 persons is mostly
attributable to ongoing restructuring.
Capital expenditure
During the first three months of 2009, capital expenditure was EUR 67 million,
3.6% of sales (EUR 137 million, 5.7% of sales).
The largest ongoing project is a new renewable energy power plant at the
Caledonian mill in Irvine, Scotland. The total investment cost is estimated to
be EUR 75 million. The new power plant is scheduled to start in the second
quarter of 2009.
Shares
In the first quarter of 2009, UPM shares worth EUR 1,503 million (2,840
million) in total were traded on the NASDAQ OMX Helsinki stock exchange. The
highest quotation was EUR 9.78 in January and the lowest EUR 4.35 in March.
The company's ADSs are traded on the US over-the-counter (OTC) market under a
Level 1 sponsored American Depositary Receipt programme.
The Annual General Meeting held on 25 March 2009 approved a proposal of the
Board of Directors to authorise the Board of Directors to decide on the
buy-back of not more than 51,000,000 own shares. The authorisation is valid for
18 months from the date of the decision.
The Annual General Meeting of 27 March 2007 decided to authorise the Board to
decide on a free issue of shares to the company itself so that the total number
of shares to be issued to the company combined with the number of own shares
bought back under the buy-back authorisation may not exceed 1/10 of the total
number of shares of the company.
In addition, the Board has the authority to decide to issue shares and special
rights entitling the holder to shares of the company. The number of new shares
to be issued, including shares to be obtained under special rights, shall be no
more than 250,000,000. Of that, the maximum number that can be issued to the
company's shareholders based on their pre-emptive rights is 250,000,000 shares
and the maximum amount that can be issued deviating from the shareholders'
pre-emptive rights in a directed share issue is 100,000,000 shares. The maximum
number of new shares to be issued as part of the company's incentive programmes
is 5,000,000. Furthermore, the Board is authorised to decide on the disposal of
own shares. To date, this authorisation has not been used. These authorisations
of the Annual General Meeting 2007 will remain valid for no more than three
years from the date of the decision.
The Meeting of 27 March 2007 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 a total of no more than
15,000,000 new shares of the company.
Apart from the above, the Board of Directors has no current authorisation to
issue shares, convertible bonds or share options.
The number of shares entered in the Trade Register on 31 March 2009 was
519,970,088. Through the issuance authorisation and share options, the number
of shares may increase to a maximum of 790,970,088.
At the end of the period, the company held 15,944 of its own shares, or 0.003%
of the total number of shares, which have been granted under the Group's share
reward scheme. These shares have been returned to the company in connection
with termination of employment contracts.
Dividend
The Annual General Meeting of 25 March 2009 approved the Board's proposal to
pay a dividend of EUR 0.40 per share for the 2008 financial year. The dividend
of EUR 208 million was approved to be paid on 8 April 2009 and is included in
short-term non-interest-bearing liabilities at the end of March.
Company directors
At the Annual General Meeting nine members were elected to the Board of
Directors. Mr Matti Alahuhta, President and CEO of KONE Corporation, Mr Berndt
Brunow, Board member of Oy Karl Fazer Ab, Mr Karl Grotenfelt, 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 the American investment firm Lane Holdings, Inc., Mr Jussi
Pesonen, President and CEO of UPM, Ms Ursula Ranin, Board member of Finnair
plc, Mr Veli-Matti Reinikkala, President of ABB Process Automation Division and
Mr Björn Wahlroos, Chairman of the Board of Sampo plc were re-elected as
members of the Board of Directors.
The term of office of the members of the Board of Directors lasts until the end
of the next Annual General Meeting.
At the assembly meeting of the Board of Directors, Mr Björn Wahlroos was
re-elected as Chairman, and Mr Berndt Brunow and Dr. Georg Holzhey were
re-elected as Vice Chairmen.
In addition, the Board of Directors appointed from among its members an Audit
Committee with Mr Karl Grotenfelt as Chairman, and Ms Wendy E. Lane and Mr
Veli-Matti Reinikkala as members. A Human Resources Committee was appointed
with Mr Berndt Brunow as Chairman, and Dr. Georg Holzhey and Ms Ursula Ranin as
members. Furthermore, a Nomination and Corporate Governance Committee was
appointed with Mr Björn Wahlroos as Chairman, and Mr Matti Alahuhta and Mr Karl
Grotenfelt as members.
Litigation
Certain competition authorities are continuing investigations into alleged
antitrust activities with respect to various products of UPM. The authorities
have granted UPM conditional full immunity with respect to certain conduct
disclosed to them. UPM has settled or agreed to settle the class-action
lawsuits in the US except for those filed by indirect purchasers of labelstock.
The remaining litigation matters may last several years. No provisions have
been made in relation to these investigations.
Events after the balance sheet date
The Group's management is not aware of any significant events occurring after
31 March 2009.
Outlook for 2009
Economic activity in UPM's main markets continues to contract and this will
have an impact on consumer demand, construction activity, and advertising
expenditure in media and thus on demand for all of UPM's products.
UPM curtails production to respond to the changes in demand. Pressure on
product prices exists, however, due to excess market supply.
UPM's paper deliveries for 2009 are forecast to be markedly lower than last
year. Deliveries for the second quarter of the year are estimated to be
somewhat higher than for the first quarter of 2009.
Demand for self-adhesive labelstock in the main markets is estimated not to
improve during the rest of the year.
Demand for birch and spruce plywood is forecast to continue at current low
level for the rest of the year. Cost of wood raw material will gradually be
lower.
For the Group wood and other raw material costs are expected to be lower than
2008, however, main impact would be during the latter part of the year. Also
fixed costs are expected to be lower.
Capital expenditure for 2009 is forecast to be about EUR 300 million.
Business area reviews
Energy
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2009 2008 2008 2008 2008 2008
Sales, EUR million 136 141 129 103 105 478
EBITDA, EUR million 1) 57 76 58 34 39 207
% of sales 41.9 53.9 45.0 33.0 37.1 43.3
Share of results of -4 -11 -8 -2 -5 -26
associated companies and
joint ventures, EUR million
Depreciation, amortisation -2 -3 -1 -1 -1 -6
and impairment charges, EUR million
Operating profit, EUR million 51 62 49 31 33 175
% of sales 37.5 44.0 38.0 30.1 31.4 36.6
Special items, EUR million - - - - - -
Operating profit excl. 51 62 49 31 33 175
special items, EUR million
% of sales 37.5 44.0 38.0 30.1 31.4 36.6
Electricity deliveries, 1,000 2,486 2,731 2,653 2,344 2,439 10,167
MWh
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and wood harvested,
the share of results of associated companies and joint ventures, and special
items.
Q1 of 2009 compared with Q1 of 2008
The operating profit excluding special items for Energy was EUR 51 million,
EUR 18 million higher than last year (33 million). Sales increased by 30% to
EUR 136 million (105 million), whereof EUR 49 million was external sales (15
million). The electricity sales volume was 2.5 TWh in the quarter (2.4 TWh).
Profitability improved compared with the same period last year, mainly due to
the higher average electricity sales price. The average electricity sales price
increased by 40% to EUR 45.2/MWh (32.3/MWh). Hydropower volume was 9% lower
than last year, which increased the average cost of procuring electricity.
Market review
The average electricity price in the Nordic electricity exchange in the first
quarter was EUR 38.2/MWh, unchanged from the same period last year (38.0/MWh).
Oil and coal prices decreased significantly in the global energy markets from
the comparison period. CO2 emission allowance prices decreased as well.
The one year forward electricity price in the Nordic electricity exchange
averaged EUR 33.8/MWh in the first quarter, 34% lower than in the same period
last year (51.4/MWh).
Pulp
Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q4/
2009 2008 2008 2008 2008 2008
Sales, EUR million 139 200 228 247 269 944
EBITDA, EUR million 1) -55 9 38 35 57 139
% of sales -39.6 4.5 16.7 14.2 21.2 14.7
Share of results of -47 -4 44 20 26 86
associated companies and
joint ventures, EUR million
Depreciation, amortisation -20 -73 -22 -17 -16 -128
and impairment charges, EUR million
Operating profit, EUR million -122 -76 60 38 67 89
% of sales -87.8 -38.0 26.3 15.4 24.9 9.4
Special items, EUR million 2) -29 -59 - - - -59
Operating profit excl. -93 -17 60 38 67 148
special items, EUR million
% of sales -66.9 -8.5 26.3 15.4 24.9 15.7
Pulp deliveries, 1,000 t 372 421 480 527 554 1,982
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and wood harvested,
the share of results of associated companies and joint ventures, and special
items.
2) In 2009, special items of EUR 29 million relate to the associated company
Metsä-Botnia's Kaskinen pulp mill closure. In 2008, special items of EUR 59
million relate to the closure of the Tervasaari pulp mill.
Q1 of 2009 compared with Q1 of 2008
The operating loss excluding special items for Pulp was EUR 93 million (profit
of EUR 67 million). The sales of UPM's own pulp mills decreased by 48% to
EUR 139 million (269 million) and deliveries by 33% to 372,000 tonnes
(554,000).
Profitability weakened substantially from the previous year. The main reasons
for the fall in profitability were the approximately 23% lower average pulp
price and lower deliveries at the same time as wood costs remained high. The
company chose to reduce wood inventories and reserves during the quarter. This
resulted in higher pulp inventories for later internal use.
EBITDA and operating profit excluding special items in the quarter include a
wood inventory write down of EUR 28 million and a pulp inventory write down of
EUR 10 million.
The share of results of the associated company Metsä-Botnia was EUR 47 million
negative (26 million positive). The result includes special charges of EUR 29
million from Metsä-Botnia's Kaskinen pulp mill closure.
Market review
In the first quarter of 2009, chemical market pulp shipments declined from the
comparison period by about 9%. Despite production curtailments, pulp producer
inventories remained at a high level. Global chemical pulp prices continued to
decline. The average softwood pulp (NBSK) market price in euro terms, at
EUR 455/tonne, was 23% lower than in the same period last year (EUR 588/tonne).
The average hardwood pulp (BHKP) market price in euro terms also decreased by
23% from last year, to EUR 409/tonne (EUR 529/tonne).
Forest and timber
Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q4/
2009 2008 2008 2008 2008 2008
Sales, EUR million 385 419 475 518 508 1,920
EBITDA, EUR million 1) -15 -52 -4 4 4 -48
% of sales -3.9 -12.4 -0.8 0.8 0.8 -2.5
Change in fair value of 11 -2 4 20 28 50
biological assets and wood
harvested, EUR million
Share of results of 1 -1 - - 1 -
associated companies and
joint ventures, EUR million
Depreciation, amortisation -5 -6 -36 -7 -7 -56
and impairment charges, EUR million
Operating profit, EUR million -18 -63 -38 17 25 -59
% of sales -4.7 -15.0 -8.0 3.3 4.9 -3.1
Special items, EUR million 2) -10 -2 -33 - -1 -36
Operating profit excl. -8 -61 -5 17 26 -23
special items, EUR million
% of sales -2.1 -14.6 -1.1 3.3 5.1 -1.2
Sawn timber deliveries, 1,000 363 421 510 628 573 2,132
m3
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and wood harvested,
the share of results of associated companies and joint ventures, and special
items.
2) In 2009, special items of EUR 10 million relate to the sales loss of
Miramichi's forestry and sawmilling operations' assets. Special items in 2008
include an impairment charge of EUR 31 million related to fixed assets of the
Finnish sawmills.
Q1 of 2009 compared with Q1 of 2008
The operating loss excluding special items for Forest and timber was EUR 8
million (profit of EUR 26 million). Sales declined by 24% to EUR 385 million
(508 million). Sawn timber deliveries decreased by 37% to 363,000 cubic metres
(573,000 cubic metres).
Profitability weakened from the same period last year, mainly due to the
approximately 21% lower average price of delivered timber goods and lower
deliveries. Wood costs remained at a high level.
The increase in the fair value of biological assets (growing trees) was EUR 21
million (41 million). The cost of wood raw material harvested from the Group's
own forests was EUR 10 million (13 million). The net effect was EUR 11 million
positive (28 million positive).
Market review
Demand for both redwood and whitewood sawn timber in Europe declined materially
from last year, due to low construction activity. Weaker market balance
resulted in significantly lower prices.
Wood purchases in the Finnish wood market were some 50% lower than in the first
quarter of 2008. In 2008 the industry prepared for prohibitive wood export
duties from Russia with high wood inventories. This combined with low wood
consumption slowed down market activity during the quarter.
In Finland fibre wood market prices decreased as wood demand slowed down. Log
market prices decreased from the previous year as well.
Paper
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2009 2008 2008 2008 2008 2008
Sales, EUR million 1,367 1,750 1,761 1,727 1,773 7,011
EBITDA, EUR million 1) 187 189 271 216 209 885
% of sales 13.7 10.8 15.4 12.5 11.8 12.6
Share of results of -1 1 - - - 1
associated companies and
joint ventures, EUR million
Depreciation, amortisation -149 -264 -388 -156 -159 -967
and impairment charges, EUR million
Operating profit, EUR million 60 -126 -114 60 51 -129
% of sales 4.4 -7.2 -6.5 3.5 2.9 -1.8
Special items, EUR million 2) 23 -153 -227 - 1 -379
Operating profit excl. 37 27 113 60 50 250
special items, EUR million
% of sales 2.7 1.5 6.4 3.5 2.8 3.6
Deliveries, publication 1,304 1,809 1,760 1,749 1,772 7,090
papers, 1,000 t
Deliveries, fine and 724 784 863 923 981 3,551
speciality papers, 1,000 t
Paper deliveries total, 1,000 t 2,028 2,593 2,623 2,672 2,753 10,641
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and wood harvested,
the share of results of associated companies and joint ventures, and special
items.
2) In 2009, special items include an income of EUR 31 million related to the
sale
of the assets of the former Miramichi paper mill and charges of EUR 8 million
related to restructuring measures. In 2008, special items include the goodwill
impairment charge of EUR 230 million impairment charges of EUR 101 million and
other restructuring costs of EUR 42 million related to the closure of the
Kajaani paper mill, and other restructuring costs, net of EUR 6 million.
Q1 of 2009 compared with Q1 of 2008
The operating profit excluding special items for Paper was EUR 37 million,
EUR 13 million lower than a year ago (50 million). Sales were EUR 1,367 million
(1,773 million). Paper deliveries decreased by 26% to 2,028,000 tonnes
(2,753,000). Paper deliveries for publication papers (magazine papers and
newsprint) decreased by 26% and for fine and speciality papers by 27% from the
previous year. The deliveries in Europe declined less than exports from Europe
as company concentrated to improve market and customer mix.
The profitability weakened from the corresponding period last year due to lower
deliveries. The average price for all paper deliveries when translated into
euros was 4% higher. The stronger euro against the GBP impacted profitability
negatively.
Pulp costs were significantly lower than last year. Also, logistic costs and
fixed costs decreased. In response to the weak market situation, extensive
production downtime was taken during the quarter.
Market review
Demand for publication papers in Europe was 19% and for fine papers 20% lower
than a year ago. In North America the demand for publication papers continued
to decline and demand was 26% down from last year. In Asia demand for fine
papers decreased likewise.
The average market prices in euro area increased but decreased in GBP area when
translated into euros due to 20% devaluation of GBP. In Europe the average
market prices in euros increased by about 2% for magazine papers and decreased
by some 3% for standard newsprint when compared with the first quarter of 2008.
The average market price increased by 4% for coated fine papers and declined by
7% for uncoated fine papers from the previous year.
In North America the average US dollar prices for magazine papers were 1%
higher for the quarter compared to the corresponding period a year ago. In Asia
market prices for fine papers decreased.
Label
Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q4/
2009 2008 2008 2008 2008 2008
Sales, EUR million 223 233 239 245 242 959
EBITDA, EUR million 1) 6 -1 9 15 11 34
% of sales 2.7 -0.4 3.8 6.1 4.5 3.5
Depreciation, amortisation -9 -16 -8 -7 -8 -39
and impairment charges, EUR million
Operating profit, EUR million -3 -38 1 8 3 -26
% of sales -1.3 -16.3 0.4 3.3 1.2 -2.7
Special items, EUR million 2) - -28 - - - -28
Operating profit excl. -3 -10 1 8 3 2
special items, EUR million
% of sales -1.3 -4.3 0.4 3.3 1.2 0.2
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and wood harvested,
the share of results of associated companies and joint ventures, and special
items.
2) In 2008, special items of EUR 28 million relate to measures to reduce
coating capacity and close two slitting terminals in Europe.
Q1 of 2009 compared with Q1 of 2008
The operating loss excluding special items for Label was EUR 3 million (profit
of EUR 3 million). Sales were EUR 223 million (242 million). Profitability
weakened due to lower sales volumes.
Delivery volumes of self-adhesive label materials declined by 10-20% depending
on the region driven by lower economic activity. Average prices converted to
euros increased by about 9% which fully compensated for the higher raw material
costs. Fixed costs were lower.
In 2008, UPM Raflatac opened two new labelstock factories; one in Dixon, USA in
January, and another in Wroclaw, Poland in November. The start-up of both
factories has proceeded according to the plan.
Restructuring of European operations, which was announced in the fourth quarter
of 2008, has proceeded as planned. The first capacity closures have already
taken place and the programme will be completed by end of the year 2009.
Market review
Demand for self-adhesive label materials has declined in all markets as demand
for consumer products has slowed down. In Europe and North America demand has
stabilised at the current low level during the first three months of the year,
and in Asia, it has shown some first signs of partial recovery.
Plywood
Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q4/
2009 2008 2008 2008 2008 2008
Sales, EUR million 75 102 121 150 157 530
EBITDA, EUR million 1) -23 -5 3 22 26 46
% of sales -30.7 -4.9 2.5 14.7 16.6 8.7
Depreciation, amortisation -5 -5 -5 -6 -5 -21
and impairment charges, EUR million
Operating profit, EUR million -29 -10 -2 19 21 28
% of sales -38.7 -9.8 -1.7 12.7 13.4 5.3
Special items, EUR million 2) -1 - - 3 - 3
Operating profit excl. -28 -10 -2 16 21 25
special items, EUR million
% of sales -37.3 -9.8 -1.7 10.7 13.4 4.7
Deliveries, plywood, 1,000 m3 133 160 188 227 231 806
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and wood harvested,
the share of results of associated companies and joint ventures, and special
items.
2) Special items in 2008 include reversals of provisions related to the
disposed Kuopio plywood mill.
Q1 of 2009 compared with Q1 of 2008
The operating loss excluding special items for Plywood was EUR 28 million
(profit of EUR 21 million). Sales decreased by EUR 82 million to EUR 75 million
as plywood deliveries declined by 42% to 133,000 m3.
Profitability for Plywood declined from last year due to significantly lower
delivery volumes and lower prices. The cost of logs remained at a record high
level.
EBITDA and operating profit excluding special items in the quarter include a
wood inventory write down of EUR 15 million.
Weak market demand led to extensive production downtime at all mills. The
Heinola mill was temporarily shut down from 19 January 2009 onwards. Decisions
to move the Lahti operations to other mills and temporarily shut down the
Kaukas mill were announced after the period on 14 April 2009.
Market review
In Europe, plywood demand declined substantially from the first quarter of 2008
due to record low construction activity and demand for engineered end products
in transportation and other industrial end uses. Declining demand in Europe has
left much idle capacity and increased need to reduce inventories in all parts
of the supply chain. The market price levels have been under pressure.
Other operations
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2009 2008 2008 2008 2008 2008
Sales, EUR million 34 34 52 66 48 200
EBITDA, EUR million 1) -29 -38 3 -13 -9 -57
% of sales -85.3 -111.8 5.8 -19.7 -18.8 -28.5
Share of results of -2 -1 -1 3 - 1
associated companies and
joint ventures, EUR million
Depreciation, amortisation -3 2 -2 -5 -3 -8
and impairment charges, EUR million
Operating profit, EUR million -34 -35 4 -16 -7 -54
% of sales -100.0 -102.9 7.7 -24.2 -14.6 -27.0
Special items, EUR million 2) - 2 4 -1 5 10
Operating profit excl. -34 -37 0 -15 -12 -64
special items, EUR million
% of sales -100.0 -108.8 0.0 -22.7 -25.0 -32.0
1) EBITDA is operating profit before depreciation, amortisation and impairment
charges, excluding the change in value of biological assets and wood harvested,
the share of results of associated companies and joint ventures, and special
items.
2) In 2008, special items include an adjustment of EUR 5 million to sales of
disposals of 2007 and other restructuring income net of EUR 5 million.
Other operations include development units (the wood plastic composite unit UPM
ProFi, RFID tags and biofuels), logistic services and corporate administration.
Q1 of 2009 compared with Q1 of 2008
Excluding special items, the operating loss for Other operations was EUR 34
million (loss of EUR 12 million). Sales amounted to EUR 34 million (48
million). The development units incurred an operating loss.
Helsinki, 29 April 2009
UPM-Kymmene Corporation
Board of Directors
Financial information
This Interim Report is unaudited
Consolidated income statement
EUR million Q1/ Q1/ Q1-Q4/
2009 2008 2008
Sales 1,857 2,410 9,461
Other operating income 17 40 83
Costs and expenses -1,734 -2,108 -8,407
Change in fair value of 11 28 50
biological assets and wood harvested
Share of results of -53 22 62
associated companies and joint ventures
Depreciation, amortisation -193 -199 -1,225
and impairment charges
Operating profit (loss) -95 193 24
Gains on available-for-sale - - 2
investments, net
Exchange rate and fair value -9 -10 -25
gains and losses
Interest and other finance -58 -49 -202
costs, net
Profit (loss) before tax -162 134 -201
Income taxes 4 -31 21
Profit (loss) for the period -158 103 -180
Attributable to:
Equity holders of the parent -158 102 -179
company
Minority interest - 1 -1
-158 103 -180
Earnings per share for profit
(loss) attributable to the equity
holders of the parent company
Basic earnings per share, EUR -0.30 0.20 -0.35
Diluted earnings per share, EUR -0.30 0.20 -0.35
Statement of comprehensive income
EUR million Q1/ Q1/Q1-Q4/
2009 2008 2008
Profit (loss) for the period -158 103 -180
Other comprehensive income for the period, after tax:
Translation differences 29 -130 -206
Net investment hedge -8 35 56
Cash flow hedges -18 20 -33
Available-for-sale investments - - -
Share of other comprehensive 4 -18 1
income of associated companies
Other comprehensive income 7 -93 -182
for the period, net of tax
Total comprehensive income -151 10 -362
for the period
Total comprehensive income attributable to:
Equity holders of the parent -151 9 -361
company
Minority interest - 1 -1
-151 10 -362
Condensed consolidated balance sheet
EUR million 31.03.2009 31.03.2008 31.12.2008
ASSETS
Non-current assets
Goodwill 934 1,163 933
Other intangible assets 409 411 403
Property, plant and equipment 5,584 6,048 5,688
Biological assets 1,144 1,121 1,133
Investments in associated 1,219 1,178 1,263
companies and joint ventures
Deferred tax assets 260 252 258
Other non-current assets 726 442 697
10,276 10,615 10,375
Current assets
Inventories 1,198 1,420 1,354
Trade and other receivables 1,447 1,791 1,710
Cash and cash equivalents 197 98 330
2,842 3,309 3,394
Assets classified as held for sale - - 12
Total assets 13,118 13,924 13,781
EQUITY AND LIABILITIES
Equity attributable to equity holders of the parent company
Share capital 890 890 890
Fair value and other reserves -151 -53 -165
Reserve for invested 1,145 1,067 1,145
non-restricted equity
Retained earnings 3,864 4,492 4,236
5,748 6,396 6,106
Minority interest 14 13 14
Total equity 5,762 6,409 6,120
Non-current liabilities
Deferred tax liabilities 612 748 658
Non-current interest-bearing 4,189 3,368 4,534
liabilities
Other non-current liabilities 605 594 624
5,406 4,710 5,816
Current liabilities
Current interest-bearing liabilities 550 995 537
Trade and other payables 1,400 1,810 1,291
1,950 2,805 1,828
Liabilities related to assets - - 17
classified as held for sale
Total liabilities 7,356 7,515 7,661
Total equity and liabilities 13,118 13,924 13,781
Condensed consolidated cash flow statement
EUR million Q1/ Q1/ Q1-Q4/
2009 2008 2008
Cash flow from operating activities
Profit (loss) for the period -158 103 -180
Adjustments 289 152 1,232
Change in working capital 216 -106 -132
Cash generated from operations 347 149 920
Finance costs, net -59 -59 -216
Income taxes paid -14 -40 -76
Net cash generated from 274 50 628
operating activities
Cash flow from investing activities
Acquisitions and share purchases - -5 -19
Purchases of intangible and -78 -175 -558
tangible assets
Asset sales and other 14 9 45
investing cash flow
Net cash used in investing -64 -171 -532
activities
Cash flow from financing activities
Change in loans and other -342 -17 305
financial items
Share options exercised - - 78
Dividends paid - - -384
Net cash used in financing -342 -17 -1
activities
Change in cash and cash -132 -138 95
equivalents
Cash and cash equivalents at 330 237 237
the beginning of period
Foreign exchange effect on cash -1 -1 -2
Change in cash and cash -132 -138 95
equivalents
Cash and cash equivalents at 197 98 330
end of period
Operating cash flow per 0.53 0.10 1.21
share, EUR
Consolidated statement of changes in equity
Attributable to equity holders of the parent company
EUR million Share Treasury Translation
capital shares differences
Balance at 1 January 2008 890 - -158
Changes in equity for 2008
Share-based compensation, net of tax - - -
Dividend paid - - -
Business combinations - - -
Total comprehensive income - - -109
for the period
Balance at 31 March 2008 890 - -267
Balance at 1 January 2009 890 - -295
Changes in equity for 2009
Share-based compensation, net of tax - - -
Dividend paid - - -
Business combinations - - -
Total comprehensive income - - 31
for the period
Balance at 31 March 2009 890 - -264
EUR million Fair value Reserve for Retained
and other invested earnings
reserves non-
restricted
equity
Balance at 1 January 2008 193 1,067 4,778
Changes in equity for 2008
Share-based compensation, net of tax 1 - -
Dividend paid - - -384
Business combinations - - -
Total comprehensive income 20 - 98
for the period
Balance at 31 March 2008 214 1,067 4,492
Balance at 1 January 2009 130 1,145 4,236
Changes in equity for 2009
Share-based compensation, net of tax 1 - -
Dividend paid - - -208
Business combinations - - -
Total comprehensive income -18 - -164
for the period
Balance at 31 March 2009 113 1,145 3,864
EUR million Total Minority Total
interest equity
Balance at 1 January 2008 6,770 13 6,783
Changes in equity for 2008
Share-based compensation, net of tax 1 - 1
Dividend paid -384 - -384
Business combinations - -1 -1
Total comprehensive income 9 1 10
for the period
Balance at 31 March 2008 6,396 13 6,409
Balance at 1 January 2009 6,106 14 6,120
Changes in equity for 2009
Share-based compensation, net of tax 1 - 1
Dividend paid -208 - -208
Business combinations - - -
Total comprehensive income -151 - -151
for the period
Balance at 31 March 2009 5,748 14 5,762
Quarterly information
EUR million Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2009 2008 2008 2008 2008 2008
Sales 1,857 2,315 2,358 2,378 2,410 9,461
Other operating income 17 9 23 11 40 83
Costs and expenses -1,734 -2,227 -1,998 -2,074 -2,108 -8,407
Change in fair value of 11 -2 4 20 28 50
biological assets and wood harvested
Share of results of -53 -16 35 21 22 62
associated companies and joint ventures
Depreciation, amortisation -193 -365 -462 -199 -199 -1,225
and impairment charges
Operating profit (loss) -95 -286 -40 157 193 24
Gains on available-for-sale - - - 2 - 2
investments, net
Exchange rate and fair value -9 -14 - -1 -10 -25
gains and losses
Interest and other finance -58 -60 -50 -43 -49 -202
costs, net
Profit (loss) before tax -162 -360 -90 115 134 -201
Income taxes 4 74 3 -25 -31 21
Profit (loss) for the period -158 -286 -87 90 103 -180
Attributable to:
Equity holders of the parent -158 -287 -86 92 102 -179
company
Minority interest - 1 -1 -2 1 -1
-158 -286 -87 90 103 -180
Basic earnings per share, EUR -0.30 -0.56 -0.17 0.18 0.20 -0.35
Diluted earnings per share, EUR -0.30 -0.56 -0.17 0.18 0.20 -0.35
Earnings per share, excluding -0.27 -0.19 0.25 0.17 0.19 0.42
special items, EUR
Average number of shares 519,954 519,979 519,999 517,622 512,581 517,545
basic (1,000)
Average number of shares 519,954 519,979 519,999 516,791 513,412 517,545
diluted (1,000)
Special items in operating -17 -240 -256 2 5 -489
profit (loss)
Operating profit (loss), -78 -46 216 155 188 513
excl. special items
% of sales -4.2 -2.0 9.2 6.5 7.8 5.4
Special items before tax -17 -240 -250 2 5 -483
Profit (loss) before tax, -145 -120 160 113 129 282
excl. special items
% of sales -7.8 -5.2 6.8 4.8 5.4 3.0
Return on equity, excl. neg. neg. 7.8 5.4 5.9 3.4
special items, %
Return on capital employed, neg. neg. 7.7 5.7 6.5 4.6
excl. special items, %
EBITDA 128 178 378 313 337 1,206
% of sales 6.9 7.7 16.0 13.2 14.0 12.7
Share of results of associated companies and joint ventures
Energy -4 -11 -8 -2 -5 -26
Pulp -47 -4 44 20 26 86
Forest and timber 1 -1 - - 1 -
Paper -1 1 - - - 1
Other operations -2 -1 -1 3 - 1
Total -53 -16 35 21 22 62
Deliveries
Q1/ Q4/ Q3/ Q2/ Q1/ Q1-Q4/
2009 2008 2008 2008 2008 2008
Electricity, 1,000 MWh 2,486 2,731 2,653 2,344 2,439 10,167
Pulp, 1,000 t 372 421 480 527 554 1,982
Sawn timber, 1,000 m3 363 421 510 628 573 2,132
Publication papers, 1,000 t 1,304 1,809 1,760 1,749 1,772 7,090
Fine and speciality papers, 724 784 863 923 981 3,551
1,000 t
Paper deliveries total, 1,000 t 2,028 2,593 2,623 2,672 2,753 10,641
Plywood, 1,000 m3 133 160 188 227 231 806
Quarterly segment information
EUR million Q1/ Q4/ Q3/ Q2/
2009 2008 2008 2008
Sales by segment
Energy 136 141 129 103
Pulp 139 200 228 247
Forest and timber 385 419 475 518
Paper 1,367 1,750 1,761 1,727
Label 223 233 239 245
Plywood 75 102 121 150
Other operations 34 34 52 66
Internal sales -502 -564 -647 -678
Sales, total 1,857 2,315 2,358 2,378
External sales
Energy 49 57 45 20
Pulp 10 6 17 18
Forest and timber 152 199 197 240
Paper 1,327 1,701 1,699 1,657
Label 222 233 238 244
Plywood 72 94 111 139
Other operations 25 25 51 60
External sales, total 1,857 2,315 2,358 2,378
Internal sales
Energy 87 84 84 83
Pulp 129 194 211 229
Forest and timber 233 220 278 278
Paper 40 49 62 70
Label 1 - 1 1
Plywood 3 8 10 11
Other operations 9 9 1 6
Internal sales, total 502 564 647 678
EBITDA by segment
Energy 57 76 58 34
Pulp -55 9 38 35
Forest and timber -15 -52 -4 4
Paper 187 189 271 216
Label 6 -1 9 15
Plywood -23 -5 3 22
Other operations -29 -38 3 -13
EBITDA, total 128 178 378 313
Operating profit (loss) by segment
Energy 51 62 49 31
Pulp -122 -76 60 38
Forest and timber -18 -63 -38 17
Paper 60 -126 -114 60
Label -3 -38 1 8
Plywood -29 -10 -2 19
Other operations -34 -35 4 -16
Operating profit (loss), total -95 -286 -40 157
% of sales -5.1 -12.4 -1.7 6.6
Special items by segment
Energy - - - -
Pulp -29 -59 - -
Forest and timber -10 -2 -33 -
Paper 23 -153 -227 -
Label - -28 - -
Plywood -1 - - 3
Other operations - 2 4 -1
Special items, total -17 -240 -256 2
Operating profit (loss)
excl.special items by segment
Energy 51 62 49 31
Pulp -93 -17 60 38
Forest and timber -8 -61 -5 17
Paper 37 27 113 60
Label -3 -10 1 8
Plywood -28 -10 -2 16
Other operations -34 -37 - -15
Operating profit (loss) excl. -78 -46 216 155
special items, total
% of sales -4.2 -2.0 9.2 6.5
EUR million Q1/2008 Q1-Q4/2008
Sales by segment
Energy 105 478
Pulp 269 944
Forest and timber 508 1,920
Paper 1,773 7,011
Label 242 959
Plywood 157 530
Other operations 48 200
Internal sales -692 -2,581
Sales, total 2,410 9,461
External sales
Energy 15 137
Pulp 22 63
Forest and timber 233 869
Paper 1,704 6,761
Label 241 956
Plywood 147 491
Other operations 48 184
External sales, total 2,410 9,461
Internal sales
Energy 90 341
Pulp 247 881
Forest and timber 275 1,051
Paper 69 250
Label 1 3
Plywood 10 39
Other operations - 16
Internal sales, total 692 2,581
EBITDA by segment
Energy 39 207
Pulp 57 139
Forest and timber 4 -48
Paper 209 885
Label 11 34
Plywood 26 46
Other operations -9 -57
EBITDA, total 337 1,206
Operating profit (loss) by segment
Energy 33 175
Pulp 67 89
Forest and timber 25 -59
Paper 51 -129
Label 3 -26
Plywood 21 28
Other operations -7 -54
Operating profit (loss), 193 24
total
% of sales 8.0 0.3
Special items by segment
Energy - -
Pulp - -59
Forest and timber -1 -36
Paper 1 -379
Label - -28
Plywood - 3
Other operations 5 10
Special items, total 5 -489
Operating profit (loss)
excl.special items by segment
Energy 33 175
Pulp 67 148
Forest and timber 26 -23
Paper 50 250
Label 3 2
Plywood 21 25
Other operations -12 -64
Operating profit (loss) excl. 188 513
special items, total
% of sales 7.8 5.4
Changes in property, plant and equipment
EUR million Q1/ Q1/ Q1-Q4/
2009 2008 2008
Book value at beginning of 5,688 6,179 6,179
period
Capital expenditure 65 128 471
Decreases -11 -2 -24
Depreciation -178 -183 -748
Impairment charges - - -182
Translation difference and 20 -74 -8
other changes
Book value at end of period 5,584 6,048 5,688
Commitments and contingencies
EUR million 31.03.2009 31.03.2008 31.12.2008
Own commitments
Mortgages 1) 760 89 787
On behalf of associated
companies and joint ventures
Guarantees for loans 9 10 10
On behalf of others
Other guarantees 2 3 2
Other own commitments
Leasing commitments for the 20 26 17
next 12 months
Leasing commitments for 51 86 56
subsequent periods
Other commitments 68 66 62
1) Mortgages relate mainly to giving mandatory security for borrowing from
Finnish pension insurance companies.
Capital commitments
EUR million Completion Total cost By
31.12.2008
Rebuild of debarking plant, October 2010 30 1
Pietarsaari
Waste water treatment plant, September 2010 19 -
Blandin
New bioboiler, Caledonian May 2009 75 57
Efficiency improvement, September 2009 9 -
Chudovo
Gas usage reduction, Schwedt August 2009 9 2
EUR million Q1/ After
2009 31.03.
2009
Rebuild of debarking plant, 1 28
Pietarsaari
Waste water treatment plant, - 19
Blandin
New bioboiler, Caledonian 10 8
Efficiency improvement, 1 8
Chudovo
Gas usage reduction, Schwedt - 7
Notional amounts of derivative financial instruments
EUR million 31.03.2009 31.03.2008 31.12.2008
Currency derivatives
Forward contracts 3,824 5,964 4,598
Options, bought - 121 -
Options, written - 174 -
Swaps 505 511 508
Interest rate derivatives
Forward contracts 2,718 4,639 2,668
Swaps 2,809 2,148 2,833
Other derivatives
Forward contracts 161 18 172
Options, bought 78 - -
Options, written 78 - 78
Swaps 8 2 8
Related party (associated companies and joint ventures)
transactions and balances
EUR million Q1/ Q1/Q1-Q4/
2009 2008 2008
Sales to associated 27 26 138
companies
Purchases from associated 103 127 592
companies
Non-current receivables at 2 - -
end of period
Trade and other receivables 22 26 37
at end of period
Trade and other payables at 30 25 27
end of period
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
2008. Income tax expense is recognised based on the best estimate of the
weighted average annual income tax rate expected for the full financial year.
The Group has adopted the following standard:
IAS 1 (Revised) Presentation of Financial Statements became effective 1 January
2009. The revised standard prohibits the presentation of items of income and
expenses (that is, ‘non-owner changes in equity') in the statement of changes
in equity, requiring ‘non-owner changes in equity' to be presented separately
from owner changes in equity. Entities can choose whether to present one
performance statement (the statement of comprehensive income) or two statements
(the income statement and statement of comprehensive income). Where entities
restate or reclassify comparative information, they will be required to present
a restated balance sheet as at the beginning comparative period in addition to
the current requirement to present balance sheets at the end of the current
period and comparative period. Following the adoption of the revised standard
the Group will present two separate statements (a separate income statement
followed by a statement of comprehensive income).
Calculation of key indicators
Return on equity, %:
(Profit before tax - income taxes) / Total equity (average) x 100
Return on capital employed, %:
(Profit before tax + interest expenses and other financial expenses) /
(Total equity + interest-bearing liabilities (average)) x 100
Earnings per share:
Profit for the period attributable to equity holders of the parent company /
Adjusted average number of shares during the period excluding treasury shares
Key exchange rates for 31.03.2009 31.12.2008 30.09.2008
the euro at end of period
USD 1.3308 1.3917 1.4303
CAD 1.6685 1.6998 1.4961
JPY 131.17 126.14 150.47
GBP 0.9308 0.9525 0.7903
SEK 10.9400 10.8700 9.7943
Key exchange rates for 30.06.2008 31.03.2008
the euro at end of period
USD 1.5764 1.5812
CAD 1.5942 1.6226
JPY 166.44 157.37
GBP 0.7923 0.7958
SEK 9.4703 9.3970
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 71-73 of the company's annual report 2008.
UPM-Kymmene Corporation
Pirkko Harrela
Executive Vice President, Corporate Communications
UPM, Corporate Communications
Media Desk, tel. +358 40 588 3284
communications@upm-kymmene.com
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Main media
www.upm-kymmene.com
