SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the month of April 2007
UPM-KYMMENE CORPORATION
(Translation of registrant’s name into English)
Eteläesplanadi 2
FIN-00130 Helsinki, Finland
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.
Form 20-F X Form 40-F
Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.
Yes No X
UPM-Kymmene Corporation Company Release April 24, 2007 at 12:00
UPM INTERIM REPORT 1 JANUARY - 31 MARCH 2007
Earnings per share excluding special items for the first quarter were EUR 0.25 (EUR 0.21 for the first quarter of 2006). EBITDA was EUR 418 million 16.6% of sales (EUR 386 million, 15.7%). Operating profit excluding special items was EUR 221 million (EUR 185 million). New Label Division was formed for self-adhesive label and RFID businesses.
Key figures
| Q1/ 2007 | Q1/ 2006 | Q1-Q4/ 2006 | ||||
Sales, EUR million | 2,519 | 2,460 | 10,022 | |||
EBITDA, EUR million 1) | 418 | 386 | 1,678 | |||
% of sales | 16.6 | 15.7 | 16.7 | |||
Operating profit, EUR million | 221 | 170 | 536 | |||
excluding special items, EUR million | 221 | 185 | 725 | |||
Profit before tax, EUR million | 177 | 136 | 367 | |||
excluding special items, EUR million | 177 | 151 | 550 | |||
Net profit for the period, EUR million | 131 | 99 | 338 | |||
Earnings per share, EUR | 0.25 | 0.19 | 0.65 | |||
excluding special items, EUR | 0.25 | 0.21 | 0.80 | |||
Diluted earnings per share, EUR | 0.25 | 0.19 | 0.65 | |||
Return on equity, % | 7.3 | 5.5 | 4.6 | |||
excluding special items, % | 7.3 | 6.1 | 5.7 | |||
Return on capital employed, % | 7.9 | 5.9 | 4.7 | |||
excluding special items, % | 7.9 | 6.4 | 6.2 | |||
Gearing ratio at end of period, % | 57 | 67 | 56 | |||
Shareholders’ equity per share at end of period, EUR | 13.38 | 13.48 | 13.90 | |||
Net interest-bearing liabilities at end of period, EUR million | 4,023 | 4,768 | 4,048 | |||
Capital employed at end of period, EUR million | 11,330 | 12,516 | 11,634 | |||
Capital expenditure, EUR million | 193 | 177 | 699 | |||
Personnel at end of period | 28,578 | 31,305 | 28,704 |
| 1) | EBITDA is operating profit before depreciation, amortization 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. |
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. The sale of Walki Wisa is expected to be completed in the second quarter, and the unit is reported in Other Operations. Comparative periods have been regrouped accordingly.
Results
Q1 of 2007 compared with Q1 of 2006
Sales for the first quarter of 2007 were EUR 2,519 million, 2% higher than EUR 2,460 million in the first quarter of 2006.
Operating profit was EUR 221 million (EUR 170 million), 8.8% (6.9%) of sales. In the first quarter of 2007 there were no special items. In 2006 operating profit excluding special items was EUR 185 million, 7.5% of sales.
Operating profit increased as a result of improved utilisation of capacity and internal efficiency. Paper prices on average remained about the same; prices for newsprint and uncoated fine paper increased, while prices for magazine paper decreased. The good profitability of the label business continued. The improvement of profitability in wood products came mainly from sawmilling. Raw material costs, especially for wood and recycled fibre, increased. The impact of the increase was partly compensated by lower fixed costs.
The share of results of associated companies and joint ventures was EUR 21 million (EUR 26 million).
Profit before tax was EUR 177 million (EUR 136 million) and excluding special items EUR 177 million (EUR 151 million). Interest and other finance costs net were EUR 49 million (EUR 46 million). The average interest rate on borrowings increased; on the other hand, net interest-bearing liabilities were lower than a year ago. Exchange rate and fair value gains and losses and gains on available-for-sale investments resulted in a gain of EUR 5 million (EUR 12 million).
Income taxes were EUR 46 million (EUR 37 million). The effective tax rate was 26% (27%).
Profit for the first quarter was EUR 131 million (EUR 99 million) and earnings per share were EUR 0.25 (EUR 0.19). Earnings per share excluding special items were EUR 0.25 (EUR 0.21). Operating cash flow per share was EUR 0.36 (EUR 0.34).
Paper deliveries
Paper deliveries for the first three months were 2,753,000 tonnes, 5% higher than in 2006 (2,633,000 tonnes). Magazine paper deliveries were 1,155,000 tonnes (1,098,000 tonnes), newsprint 630,000 tonnes (654,000 tonnes) and fine and speciality papers 968,000 tonnes (881,000 tonnes).
Financing
Cash flow from operating activities, before capital expenditure and financing, was EUR 187 million (EUR 180 million). The increase in net working capital amounted to EUR 145 million (EUR 72 million).
The gearing ratio at 31 March was 57% (67% at 31 March 2006). Equity to assets ratio at 31 March was 48.4% (44.8%). Net interest-bearing liabilities at the end of the period were EUR 4,023 million (EUR 4,768 million).
Personnel
In the first quarter, UPM had an average of 28,558 employees (31,323 employees). At the beginning of the year the number of employees was 28,704 and at the end of the period 28,578.
Capital expenditure
During the first three months, gross capital expenditure was EUR 193 million, 7.7% of sales (EUR 177 million, 7.2% of sales).
The power plant investment at the Chapelle Darblay mill in France was completed during the first quarter. The biofuel-powered boiler improves biomass utilisation at the mill. The total investment cost was EUR 75 million.
At the Jämsänkoski mill, the coated magazine paper machine 4 was shut down for conversion to label papers. The project is scheduled for completion in the second quarter of 2007. The largest ongoing investment, the rebuild of the recovery plant at the Kymi pulp mill, is proceeding according to plan.
In Uruguay, UPM’s associated company, Oy Metsä-Botnia Ab, is constructing a pulp mill with an annual capacity of 1 million tonnes. The construction is on schedule for a Q3/2007 start-up.
Changes in the Group’s structure
In February 2007, UPM announced the sale of Walki Wisa to funds managed by CapMan. UPM estimates the sale to result in a capital gain of EUR 25 million. The transaction is expected to be completed in the second quarter of 2007. In 2006 Walki Wisa had sales of EUR 287 million and it employed about 950 people.
After the balance sheet date in April, UPM signed an agreement on the sale of UPM-Asunnot Oy to Waterhouse Real Estate Investment Oy. A capital gain of around EUR 35 million is estimated on the sale. The transaction is estimated to be concluded in the second quarter of 2007. UPM-Asunnot Oy owns around 2,000 rental apartments and employs 15 people.
Shares
In the first quarter of 2007, UPM shares worth, in total, EUR 4,267 million were traded on the Helsinki Stock Exchange (EUR 5,168 million). The highest quotation was EUR 20.59 in February and the lowest EUR 18.73 in March. On the New York Stock Exchange, the company’s shares were traded to a total value of USD 57 million (90 million).
The Annual General Meeting held on 27 March 2007 approved a proposal by the Board of Directors to authorise the Board to buy back not more than 52,000,000 own shares. The authorisation is valid for 18 months. The meeting authorized the board to decide on the disposal of shares so acquired as well as on an issue of shares free of payment 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 authorization may not exceed 1/10 of the total number of shares of the company. These authorisations will remain valid for three years from the date of the decision of the Annual General Meeting.
Additionally, the 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 the shares to be obtained under special rights, will 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. This authorisation is valid for no more than three years from the date of the decision.
The meeting also decided on granting share options in connection with the company’s share-based incentive plans. In the option programmes 2007 A, B and C, the total number of share options is no more than 15,000,000, and they will entitle to subscribe in total for no more than 15,000,000 new shares of the company.
In the first quarter of 2007, 2,600 shares were subscribed for through exercising of outstanding share options. The number of shares entered in the Trade Register at 31 March 2007 was 523,262,030. Through the issuance authorisation and share options, the number of shares may increase to a maximum of 812,451,130.
At the end of the period, the company did not hold any of its own shares.
Apart from the above, the Board of Directors has no current authorisation to issue shares, convertible bonds or share options.
Dividend
The Annual General Meeting of 27 March 2007 approved the Board’s proposal to pay a dividend of EUR 0.75 per share for the 2006 financial year. The total dividend of EUR 392 million was debited from shareholders’ equity and credited to short-term non-interest-bearing liabilities at the end of March. The dividend was paid on 10 April 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, President and CEO 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 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 its members an Audit Committee with Mr Michael C. Bottenheim as Chairman, and Ms Wendy E. Lane and Mr 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
The competition authorities are continuing investigations into alleged antitrust activities with respect to various products of the company. The investigations started in 2003. The U.S. Department of Justice, the EU authorities and the authorities in several EU Member States, Canada and certain other countries have granted UPM conditional full immunities with respect to certain conduct disclosed to the authorities. The investigations of the U.S. labelstock industry and European fine paper, newsprint, magazine paper, label paper and self-adhesive labelstock markets have been closed by the U.S. Department of Justice and the European Commission competition authority.
UPM has been named as a defendant in multiple class-action lawsuits against labelstock and magazine paper manufacturers in the United States. The remaining litigation matters may last several years. No provisions have been made in relation to these investigations.
Events after the balance sheet date
With the exception of the sale of UPM-Asunnot Oy, the Group’s management is not aware of any other significant events occuring after 31 March 2007 which would have had an impact on the financial statements.
Outlook for the second quarter
In Europe, demand for printing papers is forecast to grow from the corresponding quarter of last year, while in North America demand is expected to decrease. Strong growth in demand is expected to continue in the emerging markets. UPM estimates its paper deliveries to increase from last year and average price for all paper deliveries to be about the same as in the first quarter of 2007.
Demand for self-adhesive label materials is forecast to continue to grow in all markets, and prices are expected to remain stable.
In wood products, strong demand for plywood and sawn timber will continue during the second quarter.
Increase in wood cost and possible lack of sufficient supply of wood raw material may result in less optimal use of capacity.
The company’s overall cost inflation is estimated to remain at the level of 1-2%, including expected cost savings from the ongoing profitability programme.
Divisional reviews
Magazine Papers
| Q1/ 2007 | Q4/ 2006 | Q3/ 2006 | Q2/ 2006 | Q1/ 2006 | Q1-Q4/ 2006 | |||||||
Sales, EUR million | 793 | 905 | 861 | 817 | 771 | 3,354 | ||||||
EBITDA, EUR million 1) | 113 | 157 | 155 | 145 | 113 | 570 | ||||||
% of sales | 14.2 | 17.3 | 18.0 | 17.7 | 14.7 | 17.0 | ||||||
Depreciation, amortization and impairment charges, EUR million | -86 | -88 | -209 | -210 | -97 | -604 | ||||||
Operating profit, EUR million | 27 | 75 | -62 | -85 | 16 | -56 | ||||||
% of sales | 3.4 | 8.3 | -7.2 | -10.4 | 2.1 | -1.7 | ||||||
Special items, EUR million 2) | — | 6 | -126 | -133 | — | -253 | ||||||
Operating profit excl. special items, EUR million | 27 | 69 | 64 | 48 | 16 | 197 | ||||||
% of sales | 3.4 | 7.6 | 7.4 | 5.9 | 2.1 | 5.9 | ||||||
Deliveries, 1,000 t | 1,155 | 1,288 | 1,227 | 1,148 | 1,098 | 4,761 |
| 1) | EBITDA is operating profit before depreciation, amortization and impairment charges and excluding special items. |
| 2) | Special items in the second quarter 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 at Voikkaa, and impairment charges of EUR 115 million for Miramichi. In the fourth quarter, special items relate primarily to the capital gain on the sale of Rauma power plant. |
Q1 of 2007 compared with Q1 of 2006
Operating profit, excluding special items, for Magazine Papers was EUR 27 million (EUR 16 million). Sales increased from EUR 771 million to EUR 793 million. Paper deliveries had a volume of 1,155,000 (1,098,000) tonnes.
Fixed costs were lower, internal efficiency improved and delivery volumes increased but profitability of the division remained unchanged due to a decline in paper prices. Average price for all magazine paper deliveries translated into euros was over 4% lower than a year ago. In Europe, the price for magazine paper decreased by about 2%.
Market review
During the first three months of the year, magazine paper demand in Europe continued to be good, driven by a strong increase in demand in Eastern Europe. Coated magazine paper demand increased by about 3% and that for uncoated magazine paper by about 5% compared with the same period in 2006. Export of magazine paper from Europe decreased compared with the previous year. In North America, demand for coated magazine paper decreased slightly, while the figure for uncoated magazine paper increased by about 5%. Average market price for magazine papers in Europe was down from last year. In North America, prices decreased by about 9%.
Newsprint
| Q1/ 2007 | Q4/ 2006 | Q3/ 2006 | Q2/ 2006 | Q1/ 2006 | Q1-Q4/ 2006 | |||||||
Sales, EUR million | 348 | 380 | 360 | 351 | 345 | 1,436 | ||||||
EBITDA, EUR million 1) | 92 | 89 | 98 | 86 | 72 | 345 | ||||||
% of sales | 26.4 | 23.4 | 27.2 | 24.5 | 20.9 | 24.0 | ||||||
Depreciation, amortization and impairment charges, EUR million | -48 | -48 | -48 | -47 | -47 | -190 | ||||||
Operating profit, EUR million | 44 | 39 | 50 | 34 | 25 | 148 | ||||||
% of sales | 12.6 | 10.3 | 13.9 | 9.7 | 7.2 | 10.3 | ||||||
Special items, EUR million 2) | — | -2 | — | -5 | — | -7 | ||||||
Operating profit excl. special items, EUR million | 44 | 41 | 50 | 39 | 25 | 155 | ||||||
% of sales | 12.6 | 10.8 | 13.9 | 11.1 | 7.2 | 10.8 | ||||||
Deliveries, 1,000 t | 630 | 697 | 666 | 660 | 654 | 2,677 |
| 1) | EBITDA is operating profit before depreciation, amortization and impairment charges and excluding special items. |
| 2) | The special items booked for 2006 relate mainly to the profitability programme. |
Q1 of 2007 compared with Q1 of 2006
Operating profit, excluding special items, for Newsprint increased from EUR 25 million to EUR 44 million. Sales were EUR 348 million (EUR 345 million). Paper deliveries were 630,000 tonnes (654,000 tonnes).
The main contributor to the improved profitability was the higher price of newsprint. The start-up of the new biofuel power plants at the Shotton and Chapelle Darblay mills lowered energy costs. On the other hand, the price of recycled paper was higher than a year ago. Average price for all newsprint deliveries translated into euros was almost 5% up from the corresponding period in 2006.
Market review
In Europe, demand for standard and improved newsprint was almost the same as in the first quarter of last year. Net exports from Western Europe decreased. In Europe, average market price for standard newsprint was about 4% up. In the other markets, with the exception of North America, demand increased but prices were lower than in the same period last year.
Fine and Speciality Papers
| Q1/2007 | Q4/2006 | Q3/2006 | Q2/2006 | Q1/2006 | Q1-Q4/2006 | |||||||
Sales, EUR million | 699 | 667 | 626 | 627 | 640 | 2,560 | ||||||
EBITDA, EUR million 1) | 85 | 104 | 106 | 76 | 82 | 368 | ||||||
% of sales | 12.2 | 15.6 | 16.9 | 12.1 | 12.8 | 14.4 | ||||||
Depreciation, amortization and impairment charges, EUR million | -53 | -56 | -55 | -71 | -55 | -237 | ||||||
Operating profit, EUR million | 32 | 44 | 50 | -13 | 27 | 108 | ||||||
% of sales | 4.6 | 6.6 | 8.0 | -2.1 | 4.2 | 4.2 | ||||||
Special items, EUR million 2) | — | -3 | -2 | -36 | — | -41 | ||||||
Operating profit excl. special items, EUR million | 32 | 47 | 52 | 23 | 27 | 149 | ||||||
% of sales | 4.6 | 7.0 | 8.3 | 3.7 | 4.2 | 5.8 | ||||||
Deliveries, 1,000 t | 968 | 907 | 878 | 884 | 881 | 3,550 |
| 1) | EBITDA is operating profit before depreciation, amortization and impairment charges and excluding special items. |
| 2) | In 2006, special items include personnel and impairment charges related to the profitability programme. |
Q1 of 2007 compared with Q1 of 2006
Operating profit, excluding special items, for Fine and Speciality Papers was EUR 32 million (EUR 27 million). Sales increased from EUR 640 million to EUR 699 million. Paper deliveries were 968,000 (881,000) tonnes.
Increased operating efficiency and higher uncoated fine paper prices had a positive effect on the profitability of the division. However, prices for certain raw materials, especially for chemical pulp, rose compared with the first quarter of 2006. Average price for all fine and speciality paper deliveries translated into euros remained about the same.
Market review
In Europe, demand for coated fine paper increased by about 2% compared with the same period last year. Demand for uncoated fine paper increased slightly. Good demand for label and packaging papers continued. In Europe, average market price for coated fine paper was about the same as in the first quarter of 2006. Average market price for uncoated fine paper increased by about 4%. In Asia, demand and prices for fine paper increased from last year.
Label Materials
| Q1/2007 | Q4/2006 | Q3/2006 | Q2/2006 | Q1/2006 | Q1-Q4/2006 | |||||||
Sales, EUR million | 261 | 251 | 240 | 245 | 251 | 987 | ||||||
EBITDA, EUR million 1) | 26 | 25 | 20 | 24 | 24 | 93 | ||||||
% of sales | 10.0 | 10.0 | 8.3 | 9.8 | 9.6 | 9.4 | ||||||
Depreciation, amortization and impairment charges, EUR million | -8 | -8 | -9 | -8 | -7 | -32 | ||||||
Operating profit, EUR million | 18 | 17 | 11 | 16 | 17 | 61 | ||||||
% of sales | 6.9 | 6.8 | 4.6 | 6.5 | 6.8 | 6.2 | ||||||
Special items, EUR million | — | — | — | — | — | — | ||||||
Operating profit excl. special items, EUR million | 18 | 17 | 11 | 16 | 17 | 61 | ||||||
% of sales | 6.9 | 6.8 | 4.6 | 6.5 | 6.8 | 6.2 |
| 1) | EBITDA is operating profit before depreciation, amortization and impairment charges and excluding special items. |
Q1 of 2007 compared with Q1 of 2006
Operating profit, excluding special items, for the Label Division was EUR 18 million (EUR 17 million). Sales increased by 4% from EUR 251 million to EUR 261 million.
The profitability of the division continued to be good. Delivery volumes grew in the European and North American markets. In Asia, volumes increased after the start-up of the new factory in China at the end of 2006. The average price of label materials in local currencies remained stable. There were no marked changes in raw material prices.
Market review
During the first months of the year in Europe and North America, good demand for label materials continued. At the beginning of the year the growth rate of demand was somewhat lower compared with last year, but the markets picked-up towards the end of the quarter. A strong increase in demand continued in Asia.
Wood Products
| Q1/2007 | Q4/2006 | Q3/2006 | Q2/2006 | Q1/2006 | Q1-Q4/2006 | |||||||
Sales, EUR million | 314 | 287 | 310 | 378 | 346 | 1,321 | ||||||
EBITDA, EUR million 1) | 42 | 24 | 22 | 33 | 25 | 104 | ||||||
% of sales | 13.4 | 8.4 | 7.1 | 8.7 | 7.2 | 7.9 | ||||||
Depreciation, amortization and impairment charges, EUR million | -10 | -10 | -11 | -11 | -11 | -43 | ||||||
Operating profit, EUR million | 32 | 14 | 104 | 22 | 4 | 144 | ||||||
% of sales | 10.2 | 4.9 | 33.5 | 5.8 | 1.2 | 10.9 | ||||||
Special items, EUR million 2) | — | — | 93 | — | -10 | 83 | ||||||
Operating profit excl. special items, EUR million | 32 | 14 | 11 | 22 | 14 | 61 | ||||||
% of sales | 10.2 | 4.9 | 3.5 | 5.8 | 4.0 | 4.6 | ||||||
Deliveries, plywood 1,000 m3 | 255 | 243 | 205 | 232 | 251 | 931 | ||||||
Deliveries, sawn timber 1,000 m3 | 587 | 598 | 517 | 622 | 580 | 2,317 |
| 1) | EBITDA is operating profit before depreciation, amortization and impairment charges and excluding special items. |
| 2) | Special items in the first quarter 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. |
Q1 of 2007 compared with Q1 of 2006
Operating profit, excluding special items, for Wood Products increased from EUR 14 million to EUR 32 million. Sales came to EUR 314 million (EUR 346 million). Excluding Puukeskus Oy, which was sold in August 2006, sales increased from the first quarter of 2006. Plywood deliveries were 255,000 (251,000) cubic metres and sawn timber deliveries 587,000 (580,000) cubic metres.
The profitability of the division improved despite increased raw material costs and weakened availability of logs. The profitability of plywood continued to be good, and sawmilling clearly improved its profitability from last year.
Market review
During the first quarter, birch and spruce plywood demand continued strong in all markets. Plywood prices were slightly higher than a year ago. The markets for veneers and further processed goods were solid. Redwood and whitewood sawn timber demand continued to strengthen and prices increased. The supply of logs tightened due to higher demand that caused an increase in the cost of wood raw material.
Other Operations
| EUR million | Q1/2007 | Q4/2006 | Q3/2006 | Q2/2006 | Q1/2006 | Q1-Q4/2006 | ||||||
Sales 1) | 234 | 224 | 206 | 189 | 204 | 823 | ||||||
EBITDA 2) | 60 | 69 | 27 | 33 | 70 | 199 | ||||||
Depreciation, amortization and impairment charges | -10 | -9 | -9 | -9 | -5 | -32 | ||||||
Operating profit | ||||||||||||
Forestry 3) | 28 | 23 | 20 | -82 | 20 | -19 | ||||||
Energy Department, Finland | 28 | 36 | — | 18 | 40 | 94 | ||||||
Other and eliminations | -9 | -10 | -18 | 28 | -5 | -5 | ||||||
Operating profit, total | 47 | 49 | 2 | -36 | 55 | 70 | ||||||
Special items, EUR million 4) | — | -6 | -1 | 41 | -5 | 29 | ||||||
Operating profit excl. special items, MEUR | 47 | 55 | 3 | -77 | 60 | 41 |
| 1) | Includes sales outside the Group. |
| 2) | EBITDA is operating profit before depreciation, amortization and impairment charges and excluding the change in value of biological assets and special items. |
| 3) | The second quarter of 2006 includes a decrease of EUR 102 million in the fair value of biological assets and wood harvested. |
| 4) | Special items in 2006 include in the first quarter the donation of EUR 5 million to a 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. |
Q1 of 2007 compared with Q1 of 2006
Excluding special items, operating profit for Other Operations was EUR 47 million (EUR 60 million). Sales were EUR 234 million (EUR 204 million).
The operating profit of Forestry was EUR 28 million (EUR 20 million). The increase in the fair value of biological assets (growing trees) was EUR 23 million (EUR 16 million). The cost of wood raw material harvested from the Group’s forests was EUR 26 million (EUR 21 million). Fellings from the Group’s own forests increased as planned to compensate shortage in wood supply.
The operating profit of the Energy Department in Finland was EUR 28 million (EUR 40 million). Hydropower availability was good as the water reservoirs in the Nordic countries returned to their normal levels for the season. The price of electricity at Nord Pool was significantly lower than in the corresponding period a year ago.
Associated companies and joint ventures
| EUR million | Q1/2007 | Q4/2006 | Q3/2006 | Q2/2006 | Q1/2006 | Q1-Q4/2006 | ||||||
Share of result after tax | ||||||||||||
Oy Metsä-Botnia Ab | 21 | 18 | 24 | 13 | 14 | 69 | ||||||
Pohjolan Voima Oy | — | -9 | -7 | -5 | 7 | -14 | ||||||
Other | — | — | 1 | — | 5 | 6 | ||||||
Total | 21 | 9 | 18 | 8 | 26 | 61 |
Deliveries
| Q1/2007 | Q4/2006 | Q3/2006 | Q2/2006 | Q1/2006 | Q1-Q4/2006 | |||||||
Paper deliveries | ||||||||||||
Magazine papers, 1,000 t | 1,155 | 1,288 | 1,227 | 1,148 | 1,098 | 4,761 | ||||||
Newsprint, 1,000 t | 630 | 697 | 666 | 660 | 654 | 2,677 | ||||||
Fine and speciality papers, 1,000 t | 968 | 907 | 878 | 884 | 881 | 3,550 | ||||||
Paper deliveries total | 2,753 | 2,892 | 2,771 | 2,692 | 2,633 | 10,988 | ||||||
Wood products deliveries | ||||||||||||
Plywood 1,000 m3 | 255 | 243 | 205 | 232 | 251 | 931 | ||||||
Sawn timber 1,000 m3 | 587 | 598 | 517 | 622 | 580 | 2,317 |
Helsinki, 24 April 2007
UPM-Kymmene Corporation
Board of Directors
This Interim Report is unaudited
Financial information
Consolidated income statement
| EUR million | Q1/ 2007 | Q1/ 2006 | Q1-Q4/ 2006 | |||
Sales | 2,519 | 2,460 | 10,022 | |||
Other operating income | 18 | 41 | 231 | |||
Costs and expenses | -2,119 | -2,130 | -8,514 | |||
Change in fair value of biological assets and wood harvested | -3 | -4 | -126 | |||
Share of results of associated companies and joint ventures | 21 | 26 | 61 | |||
Depreciation, amortization and impairment charges | -215 | -223 | -1,138 | |||
Operating profit | 221 | 170 | 536 | |||
Gains/losses on available-for-sale investments, net | 2 | — | -2 | |||
Exchange rate and fair value gains and losses | 3 | 12 | 18 | |||
Interest and other finance costs | -49 | -46 | -185 | |||
Profit before tax | 177 | 136 | 367 | |||
Income taxes | -46 | -37 | -29 | |||
Profit for the period | 131 | 99 | 338 | |||
Attributable to: | ||||||
Equity holders of the parent company | 131 | 99 | 340 | |||
Minority interest | — | — | -2 | |||
| 131 | 99 | 338 | ||||
Basic earnings per share, EUR | 0.25 | 0.19 | 0.65 | |||
Diluted earnings per share, EUR | 0.25 | 0.19 | 0.65 |
Condensed consolidated balance sheet
| EUR million | 31.03. 2007 | 31.03. 2006 | 31.12. 2006 | |||
ASSETS | ||||||
Non-current assets | ||||||
Goodwill | 1,514 | 1,514 | 1,514 | |||
Other intangible assets | ||||||
Property, plant and equipment | 6,435 | 7,224 | 6,500 | |||
Biological assets | 1,027 | 1,168 | 1,037 | |||
Investments in associated companies and joint ventures | 1,175 | 1,044 | 1,177 | |||
Deferred tax assets | 360 | 345 | 362 | |||
Other non-current assets | 281 | 375 | 304 | |||
| 11,227 | 12,246 | 11,355 | ||||
Current assets | ||||||
Inventories | 1,273 | 1,312 | 1,255 | |||
Trade and other receivables | 1,699 | 1,741 | 1,660 | |||
Cash and cash equivalents | 200 | 531 | 199 | |||
| 3,172 | 3,584 | 3,114 | ||||
Assets held for sale | 157 | 7 | — | |||
Total assets | 14,556 | 15,837 | 14,469 | |||
EQUITY AND LIABILITIES | ||||||
Equity attributable to the equity holders of the parent company | ||||||
Share capital | 890 | 890 | 890 | |||
Share premium reserve | 826 | 826 | 826 | |||
Fair value and other reserves | 178 | 212 | 189 | |||
Retained earnings | �� | 5,106 | 5,123 | 5,366 | ||
| 7,000 | 7,051 | 7,271 | ||||
Minority interest | 18 | 21 | 18 | |||
Total equity | 7,018 | 7,072 | 7,289 | |||
Non-current liabilities | ||||||
Deferred tax liabilities | 781 | 900 | 790 | |||
Non-current interest-bearing liabilities | 3,238 | 4,380 | 3,353 | |||
Other non-current liabilities | 600 | 641 | 627 | |||
| 4,619 | 5,921 | 4,770 | ||||
Current liabilities | ||||||
Current interest-bearing liabilities | 1,068 | 1,063 | 992 | |||
Trade and other payables | 1,809 | 1,769 | 1,418 | |||
| 2,877 | 2,832 | 2,410 | ||||
Liabilities related to assets held for sale | 42 | 12 | — | |||
Total liabilities | 7,538 | 8,765 | 7,180 | |||
Total equity and liabilities | 14,556 | 15,837 | 14,469 | |||
Consolidated statement of changes in equity
| Attributable to equity holders of the parent | ||||||||||||
| EUR million | Share capital | Treasury shares | Translation differences | Share premium reserve | Fair value and other reserves | Retained earnings | ||||||
Balance at 1 January 2006 | 890 | -3 | -34 | 826 | 233 | 5,415 | ||||||
Transactions with equity holders | ||||||||||||
Reissuance of treasury shares | — | 3 | — | — | — | 1 | ||||||
Share-based compensation | — | — | — | — | 2 | — | ||||||
Dividend paid | — | — | — | — | — | -392 | ||||||
Income and expenses recognised directly in equity | ||||||||||||
Translation differences | — | — | -22 | — | — | — | ||||||
Net investment hedge, net of tax | — | — | 7 | — | — | — | ||||||
Cash flow hedges | ||||||||||||
recorded in equity net of tax, | — | — | — | — | 17 | — | ||||||
transferred to income statement, net of tax | — | — | — | — | 9 | — | ||||||
Available-for-sale investments | ||||||||||||
transferred to income statement, net of tax | — | — | — | — | — | — | ||||||
Profit for the period | — | — | — | — | — | 99 | ||||||
Balance at 31 March 2006 | 890 | — | -49 | 826 | 261 | 5,123 | ||||||
Balance at 1 January 2007 | 890 | — | -89 | 826 | 278 | 5,366 | ||||||
Transactions with equity holders | ||||||||||||
Share-based compensation | — | — | — | — | 1 | — | ||||||
Dividend paid | — | — | — | — | — | -392 | ||||||
Income and expenses recognised directly in equity | ||||||||||||
Translation differences | — | — | -11 | — | — | — | ||||||
Other Items | — | — | — | — | — | 1 | ||||||
Cash flow hedges | ||||||||||||
recorded in equity, net of tax | — | — | — | — | 9 | — | ||||||
transferred to income statement, net of tax | — | — | — | — | -8 | — | ||||||
Available-for-sale investments | ||||||||||||
transferred to income statement, net of tax | — | — | — | — | -2 | — | ||||||
Profit for the period | — | — | — | — | — | 131 | ||||||
Balance at 31 March 2007 | 890 | — | -100 | 826 | 278 | 5,106 | ||||||
| EUR million | Total | Minority interest | Equity total | |||
Balance at 1 January 2006 | 7,327 | 21 | 7,348 | |||
Transactions with equity holders | ||||||
Reissuance of treasury shares | 4 | — | 4 | |||
Share-based compensation | 2 | — | 2 | |||
Dividend paid | -392 | — | -392 | |||
Income and expenses recognised directly in equity | ||||||
Translation differences | -22 | — | -22 | |||
Net investment hedge, net of tax | 7 | — | 7 | |||
Cash flow hedges | 17 | — | 17 | |||
recorded in equity, net of tax | 9 | — | 9 | |||
transferred to income statement, net of tax | ||||||
Available-for-sale investments transferred to income statement, net of tax | — | — | — | |||
Profit for the period | 99 | — | 99 | |||
Balance at 31 March 2006 | 7,051 | 21 | 7,072 | |||
Balance at 1 January 2007 | 7,271 | 18 | 7,289 | |||
Transactions with equity holders | ||||||
Share-based compensation | 1 | — | 1 | |||
Dividend paid | -392 | — | -392 | |||
Income and expenses recognised directly in equity | ||||||
Translation differences | -11 | — | -11 | |||
Other Items | 1 | — | 1 | |||
Cash flow hedges | 9 | — | 9 | |||
recorded in equity, net of tax | -8 | — | -8 | |||
transferred to income statement, net of tax | ||||||
Available-for-sale investments transferred to income statement, net of tax | -2 | — | -2 | |||
Profit for the period | 131 | — | 131 | |||
Balance at 31 March 2007 | 7,000 | 18 | 7,018 | |||
Condensed consolidated cash flow statement
| EUR million | Q1/ 2007 | Q1/ 2006 | Q1-Q4/ 2006 | |||
Cash flow from operating activities | ||||||
Profit for the period | 131 | 99 | 338 | |||
Adjustments, total | 273 | 220 | 1,195 | |||
Change in working capital | -145 | -72 | 21 | |||
Cash generated from operations | 259 | 247 | 1,554 | |||
Finance costs, net | -24 | -33 | -180 | |||
Income taxes paid | -48 | -34 | -159 | |||
Net cash from operating activities | 187 | 180 | 1,215 | |||
Cash flow from investing activities | ||||||
Acquisitions and share purchases | -2 | -33 | -68 | |||
Purchases of intangible and tangible assets | -201 | -151 | -635 | |||
Asset sales and other investing cash flow | 21 | 69 | 389 | |||
Net cash used in investing activities | -182 | -115 | -314 | |||
Cash flow from financing activities | ||||||
Change in loans and other financial items | -3 | 215 | -559 | |||
Dividends paid | — | — | -392 | |||
Net cash used in financing activities | -3 | 215 | -951 | |||
Change in cash and cash equivalents | 2 | 280 | -50 | |||
Cash and cash equivalents at beginning of period | 199 | 251 | 251 | |||
Foreign exchange effect on cash | — | — | -2 | |||
Change in cash and cash equivalents | 2 | 280 | -50 | |||
Cash and cash equivalents at end of period | 201 | 531 | 199 | |||
Operating cash flow per share, EUR | 0.36 | 0.34 | 2.32 | |||
Quarterly information
| EUR million | Q1/ 2007 | Q4/ 2006 | Q3/ 2006 | Q2/ 2006 | Q1/ 2006 | Q1-Q4/ 2006 | ||||||
Sales by segment | ||||||||||||
Magazine Papers | 793 | 905 | 861 | 817 | 771 | 3,354 | ||||||
Newsprint | 348 | 380 | 360 | 351 | 345 | 1,436 | ||||||
Fine and Speciality Papers | 699 | 667 | 626 | 627 | 640 | 2,560 | ||||||
Label Materials | 261 | 251 | 240 | 245 | 251 | 987 | ||||||
Wood Products | 314 | 287 | 310 | 378 | 346 | 1,321 | ||||||
Other Operations | 234 | 224 | 206 | 189 | 204 | 823 | ||||||
Internal sales | -130 | -131 | -108 | -123 | -97 | -459 | ||||||
Sales, total | 2,519 | 2,583 | 2,495 | 2,484 | 2,460 | 10,022 | ||||||
Operating profit by segment | ||||||||||||
Magazine Papers | 27 | 75 | -62 | -85 | 16 | -56 | ||||||
Newsprint | 44 | 39 | 50 | 34 | 25 | 148 | ||||||
Fine and Speciality Papers | 32 | 44 | 50 | -13 | 27 | 108 | ||||||
Label Materials | 18 | 17 | 11 | 16 | 17 | 61 | ||||||
Wood Products | 32 | 14 | 104 | 22 | 4 | 144 | ||||||
Other Operations | 47 | 49 | 2 | -36 | 55 | 70 | ||||||
Share of results of associated companies and joint ventures | 21 | 9 | 18 | 8 | 26 | 61 | ||||||
Operating profit (loss), total | 221 | 247 | 173 | -54 | 170 | 536 | ||||||
% of sales | 8.8 | 9.6 | 6.9 | -2.2 | 6.9 | 5.3 | ||||||
Gains on available-for-sale investments, net | 2 | -2 | — | — | — | -2 | ||||||
Exchange rate and fair value gains and losses | 3 | 4 | -3 | 5 | 12 | 18 | ||||||
Interest and other finance costs, net | -49 | -46 | -41 | -52 | -46 | -185 | ||||||
Profit (loss) before tax | 177 | 203 | 129 | -101 | 136 | 367 | ||||||
Income taxes | -46 | -8 | 18 | -2 | -37 | -29 | ||||||
Profit (loss) for the period | 131 | 195 | 147 | -103 | 99 | 338 | ||||||
Basic earnings per share, EUR | 0.25 | 0.37 | 0.29 | -0.20 | 0.19 | 0.65 | ||||||
Diluted earnings per share, EUR | 0.25 | 0.38 | 0.28 | -0.20 | 0.19 | 0.65 | ||||||
Average number of shares basic (1,000) | 523,261 | 523,258 | 523,256 | 523,256 | 523,108 | 523,220 | ||||||
Average number of shares diluted (1,000) | 527,086 | 526,416 | 525,938 | 525,874 | 525,936 | 526,041 | ||||||
Special items in operating profit.
Special items in operating profit are specified in the divisional reviews on pages 5-8.
Magazine Papers | — | 6 | -126 | -133 | — | -253 | ||||||
Newsprint | — | -2 | — | -5 | — | -7 | ||||||
Fine and Speciality papers | — | -3 | -2 | -36 | — | -41 | ||||||
Label Materials | — | — | — | — | — | — | ||||||
Wood Products | — | — | 93 | — | -10 | 83 | ||||||
Other Operations | — | -6 | -1 | 41 | -5 | 29 | ||||||
Share of results of associated companies and joint ventures | — | — | — | — | — | — | ||||||
Special items in operating profit, total | — | -5 | -36 | -133 | -15 | -189 | ||||||
Special items after operating profit | — | 6 | — | — | — | 6 | ||||||
Special items reported in taxes | — | 35 | 20 | -29 | — | 26 | ||||||
Special items, total | — | 36 | -16 | -162 | -15 | -157 | ||||||
Operating profit, excluding special items | 221 | 252 | 209 | 79 | 185 | 725 | ||||||
% of sales | 8.8 | 9.8 | 8.4 | 3.2 | 7.5 | 7.2 | ||||||
Profit before tax, excluding special items | 177 | 202 | 165 | 32 | 151 | 550 | ||||||
% of sales | 7.0 | 7.8 | 6.6 | 1.3 | 6.1 | 5.5 | ||||||
Earnings per share, excluding special items, EUR | 0.25 | 0.30 | 0.25 | 0.04 | 0.21 | 0.80 | ||||||
Return on equity excl. special. items, % | 7.3 | 8.7 | 7.2 | 1.1 | 6.1 | 5.7 | ||||||
Return of capital empl. excl. special items, % | 7.9 | 8.7 | 7.1 | 2.7 | 6.4 | 6.2 |
Changes in property, plant and equipment
| EUR million | Q1/ 2007 | Q1/ 2006 | Q1-Q4/ 2006 | |||
Book value at beginning of period | 6,500 | 7,316 | 7,316 | |||
Acquired companies | — | — | — | |||
Capital expenditure | 181 | 144 | 604 | |||
Decreases | -12 | -19 | -325 | |||
Depreciation and impairment charges | -195 | -206 | -1,039 | |||
Translation difference and other changes | -39 | -11 | -56 | |||
Book value at end of period | 6,435 | 7,224 | 6,500 |
Commitments and contingencies
| EUR million | 31.03.2007 | 31.03.2006 | 31.12.2006 | |||
Own commitments Mortgages | 94 | 94 | 92 | |||
On behalf of associated companies and joint ventures Guarantees for loans | 11 | 19 | 12 | |||
On behalf of others | ||||||
Guarantees for loans | 1 | 2 | 1 | |||
Other guarantees | 5 | 6 | 5 | |||
Other own commitments | ||||||
Leasing commitments for the next 12 months | 26 | 23 | 23 | |||
Leasing commitments for subsequent periods | 94 | 72 | 94 | |||
Other commitments | 80 | 69 | 69 |
Capital commitments
| EUR million | Completion | Total cost | By 31.12.2006 | Q1/ 2007 | After 31.3.2007 | |||||
Pulp mill rebuild, Kymi | June 2008 | 325 | 25 | 77 | 223 | |||||
New USA mill, UPM Raflatac, Dixon | March 2008 | 88 | 8 | 9 | 71 | |||||
New Bioboiler, Caledonian | September 2009 | 72 | — | — | 72 | |||||
PM5 quality upgrade, Jämsänkoski | June 2008 | 38 | — | — | 38 | |||||
PM4, rebuild, Jämsänkoski | May 2007 | 45 | 11 | 13 | 21 |
Notional amounts of derivative financial instruments
| EUR million | 31.03.2007 | 31.03.2006 | 31.12.2006 | |||
Currency derivatives | ||||||
Forward contracts | 3,968 | 4,440 | 4,293 | |||
Options, bought | 3 | 10 | 20 | |||
Options, written | 3 | 10 | 10 | |||
Swaps | 565 | 577 | 570 | |||
Interest rate derivatives | ||||||
Forward contracts | 2,851 | 3,193 | 2,500 | |||
Swaps | 2,542 | 2,743 | 2,566 | |||
Other derivatives | ||||||
Forward contracts | 12 | 20 | 13 | |||
Swaps | 12 | 31 | 16 |
Related party (associated companies and joint ventures) transactions and balances
| EUR million | Q1/2007 | Q1/2006 | Q1-Q4/2006 | |||
Sales to associated companies | 15 | 14 | 61 | |||
Purchases from associated companies | 103 | 86 | 448 | |||
Non-current receivables at end of period | — | 4 | — | |||
Trade and other receivables at end of period | 14 | 11 | 20 | |||
Trade and other payables at end of period | 28 | 32 | 23 |
Key exchange rates for the euro at end of period
| 31.3. 2007 | 31.12. 2006 | 30.9. 2006 | 30.6. 2006 | 31.3. 2006 | ||||||
USD | 1.3318 | 1.3170 | 1.2660 | 1.2713 | 1.2104 | |||||
CAD | 1.5366 | 1.5281 | 1.4136 | 1.4132 | 1.4084 | |||||
JPY | 157.32 | 156.93 | 149.34 | 145.75 | 142.42 | |||||
GBP | 0.6798 | 0.6715 | 0.6777 | 0.6921 | 0.6964 | |||||
SEK | 9.3462 | 9.0404 | 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 Annual Report for 2006. 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:
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) / Shareholders’ equity (average) x 100
Return on capital employed, %:
(Profit before tax + interest expenses and other financial expenses) /
(Balance sheet total – non-interest-bearing liabilities (average)) x 100
Earnings per share:
Profit for the period attributable to equity holders of parent company /
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, 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
Helsinki Exchanges
New York Stock Exchange
Main media
www.upm-kymmene.com
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| UPM-KYMMENE CORPORATION | ||||||
| Date: April 24, 2007 | By: | /s/ Jyrki Salo | ||||
| Jyrki Salo | ||||||
| Executive Vice President and CFO | ||||||
| By: | /s/ Olavi Kauppila | |||||
| Olavi Kauppila | ||||||
| Senior Vice President, Investor Relations | ||||||
