UPM-KYMMENE INTERIM REVIEW 1 JANUARY 30 JUNE 2001

Transcription

1 UPM-KYMMENE INTERIM REVIEW 1 JANUARY 30 JUNE 2001 Earnings per share, excluding net capital gains, improved to EUR 1.91 (1 6/2000: 1.80). Profit before extraordinary items and net capital gains was EUR 627 million (659). Turnover was up 10% to EUR 5,024 million. Acquisition of the German company Haindl was agreed at the end of May. First-half earnings Operating profit, excluding net capital gains from the sale of shares and business operations, was 10 per cent up from EUR 685 million last year to EUR 753 million. Including net capital gains, operating profit was EUR 755 million. (1 6/2000: EUR 1,021 million). The comparative figure for last year includes net capital gains of EUR 336 million, which were EUR 2 million in the review period. The result was bolstered by the higher prices of the company s main products, but weakened by lower capacity utilization rates. Operating profit, excluding net capital gains, was 15.0% of turnover, the same as for this period last year. The Publication Papers division improved its operating profit compared with last year, mainly thanks to higher sales prices. Favourable exchange rates and lower pulp costs also boosted the division s result. Operating profit for the Fine Papers division was down due to lower capacity utilization rates. Operating profit for the Converting Materials division improved slightly, but that for the Wood Products division was lower due to the fall in prices for sawn timber. The profitability of chemical pulp produced mainly for internal use was at the same level as in the first half of last year, but there was a marked improvement in the profitability of the energy unit due to the higher prices of electricity sold externally. Profit before extraordinary items and net capital gains was EUR 627 million (659). Including net capital gains, the figure was EUR 629 million (995). Financial expenses, net, were EUR 126 million (26) and included EUR 32 million (49) in dividend income. Earnings per share were EUR 1.91 (2.72). Return on equity was 16.1% (25.9) and return on capital employed 15.1% (24.4). Excluding net capital gains, the corresponding figures were EUR 1.91 (1.80), 16.0% (17. and 15.0% (16.9). Second-quarter earnings Operating profit for the second quarter, excluding net capital gains, was EUR 353 million, representing 13.9% of turnover (4 6/2000: EUR 328 million, 14.2%). The result was bolstered by the higher average sales prices of the company s main products, but weakened by lower capacity utilization rates. The result for the second quarter last year was weakened by about EUR 60 million due to the Finnish paper workers strike in April Operating profit for the second quarter was 12% down from the Q1 level of EUR 400 million (16.1% of turnover). Earnings per share for the second quarter, excluding net capital gains, were EUR 0.81 (0.88). Although operating profit rose, earnings per share were burdened by higher financial expenses arising from the acquisitions of the Miramichi and Changshu mills. Earnings per share for the first quarter were correspondingly EUR 1.10 (0.92) Production, deliveries and turnover Paper production by the UPM-Kymmene Group for the first half of the year was up 7% at 4,166,000 tonnes (3,900,000). The growth is attributable to the acquisitions last year of the Miramichi and Changshu paper mills. The average capacity utilization rate was 89% (94). Capacity utilization rates in the second quarter were lower than in the first. Market-related production cutbacks totalled 410,000 tonnes, of which 290,000 tonnes occurred in the second quarter. Despite this, stocks have risen since the beginning of this year. Sawn timber production rose to 1,149,000 cubic metres (1,053,000) in the review period. The increase was due to the acquisition of the Aureskoski sawmill last August. Plywood production was 418,000 cubic metres (410,000). Deliveries of newsprint and magazine paper totalled 2,730,000 tonnes, up 5% on the first half of last year. Fine paper deliveries were 1% down at 901,000 tonnes. Group turnover was EUR 5,024 million, 10% up on last year s first-half figure of EUR 4,553 million. Acquisition of Haindl At the end of May, UPM-Kymmene agreed to acquire 100% of the shares of the German paper producer G. Haindl sche Papierfabriken KGaA ( Haindl ) for a total consideration of EUR 3.64 billion. Assuming Haindl s net interest-bearing liabilities of approximately EUR 210 million, the total enterprise value will be EUR 3.85 billion. UPM-Kymmene has reached a separate, back-to-back agreement to sell two of Haindl s six paper mills, Walsum and Parenco, to the Norwegian paper producer Norske Skog AS for EUR 1.1 billion. The transactions are subject to approval by the competition authorities. In July the agreements proceeded to the detailed probe stage of the European Commission merger review. The parties expect to close the transactions during this year. The four mills thus acquired are located at Augsburg, Schongau and Schwedt in Germany and at Steyrermühl in Austria. Their combined production capacity is 1.9 million tonnes, of which 930,000 tonnes is newsprint, 590,000 SC paper and

2 UPM-KYMMENE INTERIM REVIEW 1 6/ ,000 LWC paper. The mills are competitive and in excellent condition: approximately 60% of the acquired capacity has been built or rebuilt since In the year 2000 the four mills generated turnover of about EUR 970 million and employed approximately 2,370 people. Following the transaction, UPM-Kymmene s total paper production capacity will rise to 11.6 million tonnes, of which 5.5 million tonnes will be magazine papers, 2.7 million tonnes newsprint, 2.4 million tonnes fine papers and 0.9 million tonnes speciality papers. Combining the assets acquired from Haindl with UPM- Kymmene is expected to lead to annual synergies of approximately EUR 70 million, fully realized at the end of The acquisition is expected to yield an immediate improvement in per-share cash flow from operations and earnings per share before depreciation of goodwill, and to contribute to earnings per share in Extraordinary General Meeting An Extraordinary General Meeting will be held on 2 August The meeting will decide on the Board of Directors proposal to raise the share capital by EUR 20,910,000 through the issuance of 12,300,000 new shares to certain Haindl shareholders at a subscription price of EUR per share. This subscription price is equivalent to the average price of UPM-Kymmene Corporation shares on Helsinki Exchanges between 30 March and 16 May If approved, the authorization given to the Board of Directors will remain in force until 30 June 2002, provided that the acquisition of Haindl goes through. Capital expenditure Gross capital expenditure excluding acquisitions was EUR 433 million (273 million). Acquisitions and share purchases were EUR 162 million (30). The biggest ongoing investment is the rebuild of paper machine 8 and construction of a coating line at the Kymi fine paper mill. The project will be completed this autumn at a cost of around EUR 280 million. Loparex (formerly Lohjan Paperi), which is part of the Converting Materials division, bought Rexam PLC s siliconizing business Rexam Release during the first quarter. This business is included in the consolidated figures from 1 March The acquisition, which cost USD 123 million, comprises three plants in the United States and one in the Netherlands. In the year 2000 Rexam Release had a turnover of roughly USD 180 million and a workforce of 600. In the first quarter UPM-Kymmene bought a sawmill in the province of New Brunswick, Canada. The sawmill has a production capacity of 72,000 cubic metres. The sawmilling operation and its forest harvesting rights will serve the wood procurement needs of the Miramichi mill. Financing The Group s equity to assets ratio at the end of the review period was 44.3% (49. and the gearing ratio 82% (49). Net interest-bearing liabilities increased by EUR 2,044 million to EUR 4,806 million (2,762 million). The increase is due to acquisitions. The average rate of interest on the Group s loans was 5.5% (5.3). The net cash flow from operations, before capital expenditure and financing, was EUR 589 million (728 million). Personnel The average number of employees over the review period was 34,087 (32,076). The number of employees at the end of June was 36,563 (34,298). Shares UPM-Kymmene Corporation shares worth EUR 3,527 million (3,825) were traded on Helsinki Exchanges in the review period. The corresponding figure for the New York Stock Exchange was EUR 63 million (94). The highest quotation was EUR in May and the lowest EUR in March. During the review period a total of 415,896 shares were subscribed under the FIM 960 million convertible bond issue of The total number of shares in issue at the end of June was 247,489,015. Share subscriptions under convertible bonds and options offered to key personnel could raise the number of shares to a maximum of 256,833,109. The Annual General Meeting held on 22 March 2001 decided to lower the company s share capital by invalidating 12.9 million own shares purchased during the period 21 June February 2001 on the basis of an earlier decision. The meeting also approved a proposal for a new share buyback programme covering a maximum of 12.3 million shares. On the basis of this decision, in the review period a total of 1,175,398 shares were bought back for EUR 37.6 million, at an average price per share of EUR The company s 1998 issue of 1,897,500 class A warrants has been listed on Helsinki Exchanges since 2 April At the end of the review period, the Board of Directors had no authorization to issue new shares, convertible bonds or share options. Dividend The dividend for the year 2000, EUR 371 million or EUR 1.50 per share, was paid on 3 April Board of Directors After the end of the review period at the beginning of July, Mr. L.J. Jouhki, member of UPM-Kymmene s Board of Directors and Managing Partner of the Thomesto Group, resigned from the Board due to a serious illness. Litigation In March 1999, the European Commission presented UPM- Kymmene with a Statement of Objection alleging participation by the company s predecessors in a price cartel concerning newsprint during the period The company s response to the allegation is still being considered by the Commission. No provision has been made in this respect. The company has no other significant matters of litigation. Market outlook Economic growth has slowed down in the company s most important markets. The US economy has continued to grow sluggishly during the second quarter and the signs of a slowdown

3 UPM-KYMMENE INTERIM REVIEW 1 6/ Turnover and operating profit by division T u r n o v e r Operating profit 1 6/ /2000 Change 1 12/ / /2000 Change 1 12/2000 M M % M M % M % M M % Publication Papers 2,191 1, , Fine Papers , Converting Materials 1, , Wood Products , Chemical pulp Forest , Energy Other Internal sales 1,132 1, ,181 Total 5,024 4, , , Capital gains, net Operating profit, total , , Contributions from internal sales Chemical pulp Forest Energy Calculation of divisional operating profit percentages does not include results of associated companies. have increased in Europe as well. Due to the general economic situation, no improvement is expected in paper demand in the near future. Prices for newsprint and magazine papers rose in Western Europe at the turn of the year. Newsprint prices have remained stable, but coated magazine paper and especially fine paper prices have come under pressure, although the price level has still been satisfactory. Deliveries and sales prices of converting materials are expected to remain satisfactory. The market situation for sawn timber in Europe is still weak as a result of over-supply, but the plywood market is expected to remain stable. DIVISIONAL REVIEWS Publication Papers The division s turnover rose by 17% in the review period. Deliveries were 5% up and the capacity utilization rate was 91% (93). Operating profit was 34% higher than in the first half of last year. The Q2 result was also better sequentially. Operating profit benefited above all from product price rises at the turn of the year and from the lower price of chemical pulp. On the other hand, the result was adversely affected by lower capacity utilization rates for coated magazine paper. In Western Europe demand for coated magazine paper declined by 3%, while demand for the uncoated grade rose by 4%. In the United States, however, demand for coated and uncoated magazine paper fell by 5% and 6%, respectively. Demand for newsprint in Western Europe increased by about 1%. Average sales prices for the division s products in Western Europe were almost 10% higher than in the first half of last year, while in the United States magazine paper prices were about 3% higher. Prices for newsprint and magazine papers in Europe have been agreed largely at present levels up to the end of the year. Fine Papers First-half turnover was 8% up on last year. Deliveries were 1% down and the capacity utilization rate was 85% (96). Operating profit was down on the first half of last year, mainly because of lower capacity utilization rates and delivery volumes. On the other hand, the result was boosted by the lower price of chemical pulp and full production at the mill in China. Profitability weakened in the second quarter. In Western Europe demand for uncoated and coated fine paper declined by 4% and 8%, respectively. Fine paper prices in Western Europe fell slightly during the review period, while prices in Asia strengthened somewhat in the second quarter. Compared with the first half of last year, prices for uncoated and coated fine paper in Western Europe were up 12% and 4%, respectively.

4 UPM-KYMMENE INTERIM REVIEW 1 6/ Converting Materials The division s turnover and operating profit was up by 7% in the first half of the year. Profitability in the second quarter was the same as for the first quarter. Demand for label papers continued to be steady during the review period, whereas demand for self-adhesive labelstock was weaker than expected in Western Europe and in the United States. With the exception of China, the Asia-Pacific market for selfadhesive labelstock was also weak. Demand for siliconized papers has weakened in all of the company s main markets, and it has been necessary to cut back production accordingly. The market situation for packaging papers and materials has continued to be good. The production capacity of envelope papers has not been fully utilized. Wood Products The division s turnover was up 4%, largely due to acquisitions. Operating profit, however, was down by 42% compared with the first half of last year. The decline in profitability was due to lower sawn timber prices and the higher cost of logs. The market situation for plywood remained stable and profitability was good. Demand for wood-based building supplies was satisfactory during the review period. Timber deliveries from the sawmills were up 9% and plywood deliveries were the same as last year. Chemical pulp, Forest, Energy The average price of long-fibre market pulp fell by 7% from USD 650/tonne during the first half of last year to USD 605 during the review period. Since the end of the review period the price has fallen to below USD 500/tonne. Demand for pulp has been weak and suppliers stocks are at above-average levels despite reduced production. Pulp production was 1,045,000 tonnes (914,000). The average capacity utilization rate was 90% (9. The increase in production is attributable to the Miramichi mill. Miramichi s 100,000 tonnes of pulp is included in the Publication Papers division. A further 224,000 tonnes of pulp (226,000) is included in the Fine Papers division and 186,000 tonnes (172,000) in the Converting Materials division. Operating profit for pulp production other than that for the divisions was EUR 200 million (20, which includes EUR 62 million (74) in profit attributable to associated companies. Almost all this chemical pulp and that obtained through associated companies is supplied to the Group s own paper mills at market price. The volume of wood purchased from private forests in Finland was the same as last year. Pulpwood prices were slightly lower than last year. The cost of logs fell towards the end of the review period as a consequence of the weakened market situation for sawmilling, although average prices were still higher than they were a year earlier. Wood deliveries to the mills in Finland were 4% up on the same period last year at 11.3 million cubic metres. The Group s electricity consumption in Finland rose by 4%. Occasional sales of excess electrical power on the Nordic electricity exchange during periods of peak prices had a positive impact on profitability. Helsinki, 2 August 2001 Board of Directors 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: ( operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the Group s targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group s patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group s products and the pricing pressures thereto, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group s principal geographic markets or fluctuations in exchange and interest rates.

5 UPM-KYMMENE INTERIM REVIEW 1 6/ This Interim Review is unaudited Earnings EUR million 1 6/ /2000 Changes 1 12/2000 Turnover... 5,024 4, ,583 Other operating income Costs and expenses... 3,988 3, ,741 Share of results of associated companies Depreciation and value adjustments Operating profit , ,860 % of turnover % of turnover, excluding net capital gains Financial income and expenses Profit before extraordinary items ,717 % of turnover Extraordinary income Extraordinary expenses Income tax on extraordinary items Profit after extraordinary items , ,859 Income taxes Minority interest... 1 Profit for the period ,366 Balance sheet EUR million Change Intangible assets Goodwill on consolidation Tangible assets... 7,874 6,555 1,319 7,561 Investments held as non-current assets... 1,624 1, ,619 Own shares Non-current assets, total... 10,308 8,552 1,756 10,163 Stocks... 1,301 1, ,184 Receivables... 1,627 1, ,538 Cash in hand and at bank Total assets... 13,342 11,437 1,905 13,113 Shareholders equity... 5,894 5, ,156 Minority interest Provisions Deferred tax liability Non-current liabilities... 4,226 2,839 1,387 3,702 Current liabilities... 2,342 2, ,374 Total equity and liabilities... 13,342 11,437 1,905 13,113 Key figures 1 6/ /2000 Change 1 12/2000 Earnings per share, EUR Diluted earnings per share, EUR Cash flow from operations per share, EUR Return on equity, % Return on capital employed, % Equity to assets ratio at end of period, % Gearing ratio at end of period, % Equity per share at end of period, EUR Net interest-bearing liabilities at end of period, EUR million... 4,806 2,762 2,044 4,071 Gross capital expenditure, incl. acquisitions, EUR million ,175 % of turnover Gross capital expenditure, excl. acquisitions, EUR million % of turnover Personnel at end of period... 36,563 34,298 2,265 32,755 No. of shares, average (1,000) , ,445 12, ,817 No. of shares at end of period (1,000) , ,613 12, ,647 For purposes of calculating key figures, own shares have been eliminated from shareholders equity and the numbers of shares.

6 UPM-KYMMENE INTERIM REVIEW 1 6/ This Interim Review is unaudited Cash flow EUR million 1 6/ /2000 Change 1 12/2000 Operating profit , ,860 Depreciation and other adjustments Change in working capital Financial income and expenses and direct taxes paid Cash from operating activities ,639 Company acquisitions Other investments and purchases of tangible and intangible assets Asset sales and decrease in non-current receivables Termination of Champion agreement Cash provided by (used in) investing activities Cash flow before financing activities ,310 Dividends paid Purchases of own shares Change in loans and other financial items Cash provided by (used in) financing activities ,398 Change in cash and cash equivalents Contingent liabilities EUR million Change On own behalf ,073 On behalf of associated companies On behalf of others Pension liabilities Leasing commitments Values of open derivative agreements Market value Market value Nominal value Nominal value EUR million Currency derivatives Forward contracts ,461 1,345 Options, bought Options, written Swaps Interest rate derivatives Forward contracts ,737 2,975 Options, bought... Options, written... Swaps ,319 2,806 Other derivatives Forward contracts Other derivatives include pulp, paper and electricity derivatives.

7 UPM-KYMMENE INTERIM REVIEW 1 6/ This Interim Review is unaudited Quarterly figures EUR million II/2001 I/2001 IV/2000 III/2000 II/2000 I/2000 Turnover Publication Papers... 1,120 1,071 1,234 1, Fine Papers Converting Materials Wood Products Chemical pulp Forest Energy Other Internal sales Turnover, total... 2,536 2,488 2,632 2,398 2,316 2,237 Operating profit Publication Papers Fine Papers Converting Materials Wood Products Chemical pulp 2) Forest Energy Other Total, excluding net capital gains % of turnover Capital gains, net Operating profit, total Dividend income Other financial income and expenses Profit before extraordinary items Extraordinary items Profit after extraordinary items Income taxes Minority interest Profit for the period Includes non-recurring charges of EUR 13 million for the Publication Papers division, EUR 14 million for the Fine Papers division, and EUR 9 million for the Wood Products division. 2) Includes the Group s share of the results of associated companies Earnings per share, EUR Earnings per share excluding capital gains, EUR Deliveries and production II/2001 I/2001 IV/2000 III/2000 II/2000 I/2000 Deliveries Publication Papers (1,000 t)... 1,402 1,328 1,584 1,363 1,299 1,299 Fine Papers (1,000 t) Production Paper, including speciality papers (1,000 t)... 1,990 2,176 2,222 2,163 1,897 2,003 Sawn timber (1,000 m 3 ) Plywood (1,000 m 3 ) Chemical pulp (1,000 t) Key exchange rates for the euro at end of period II/2001 I/2001 IV/2000 III/2000 II/2000 I/2000 USD CAD JPY GBP SEK UPM-Kymmene Corporation, P.O. Box 380, Helsinki, Finland. Tel , fax , ,