UPM’s sales decreased by 5% in 1-3Q08

Oct 28, 2008. /Lesprom.com/. UPM announced sales for January–September were Euro 7,146 million, 5% lower than the Euro 7,523 million in the same period in 2007. Operating profit was Euro 310 million, 4.3% of sales (341 million, 4.5% of sales) and excluding special items Euro 559 million, 7.8% of sales (641 million, 8.5% of sales). Sales decreased partly due to lower deliveries and partly due to the divestment of the Walki Wisa industrial wrappings business in June 2007. Furthermore, both GBP and USD depreciated against the euro, affecting sales. The operating profit excluding special items declined mainly due to the increase in wood costs, lower paper deliveries and the decline in sawn timber prices. Recovered paper, purchased electricity and fuel prices were also higher than last year. Fixed costs declined, and the net increase in cost level was below 2%. Paper divisions’ combined operating profit excluding special items declined to Euro 296 million (334 million). Average paper prices increased approximately 2% from last year. However, paper deliveries decreased by 5%. Production was stopped in the Miramichi paper mill in Canada in August 2007, and the mill was permanently closed at the end of the year. Label Materials’ operating profit excluding special items declined to Euro 5 million from last year’s e 41 million, mainly due to higher raw material and fixed costs. Further weakening of sawn timber markets led to lower prices which combined with the high wood costs caused the Wood Products Division to report an operating loss excluding special items of Euro 18 million (profit of Euro 71 million). In Other Operations, the Energy Department in Finland improved its operating profit to Euro 127 million (70 million), benefiting from good availability of hydropower and increased electricity price. The increase in the fair value of biological assets net of wood harvested was Euro 52 million (32 million). The share of results of associated companies and joint ventures was Euro 78 million (41 million). The improvement came from Metsä-Botnia’s new pulp mill in Uruguay, started up in October 2007, which more than compensated for the weakened profitability in Metsä-Botnia’s Finnish operations. Profit before tax was Euro 159 million (200 million) and excluding special items Euro 402 million (500 million). Interest and other finance costs, net, were Euro 142 million (145 million). Exchange rate and fair value gains and losses resulted in a loss of Euro 11 million (gain of Euro 2 million). Income taxes were Euro 53 million (148 million), and the effective tax rate excluding the impact of special items was 22% (24%). Profit for the period was Euro 106 million (52 million). Earnings per share were Euro 0.21 (0.10) and excluding special items Euro 0.61 (0.76). Operating cash flow per share was Euro 0.52 (1.09). Risk factors Rapid downgrades in European and global economic growth forecasts have considerably increased uncertainties about 2009 business environment including cost development and demand of UPM’s products. If implemented, the third increase in the export duty on Russian wood from the beginning of 2009 will make imports of round wood uneconomical. Finnish industry, including UPM, has announced plans to close wood consuming capacity in Finland. Despite these efforts, there is a high risk that the imports cannot be fully replaced in a financially sound manner in 2009. Outlook Paper demand in Europe is expected to be lower than last year. In North America, continued decline in demand persists. Demand growth in China is slowing down. For the fourth quarter of the year UPM’s paper deliveries are expected to be over 200,000 tons less than last year. Group’s average paper price in euro is expected to be unchanged from the third quarter of 2008. Market demand for self-adhesive labelstock is forecast to be lower than last year both in Europe and North America. In Asia, growth in demand continues although at a clearly slower pace. Selfadhesive labelstock prices in local currencies are expected to increase in key markets. In Wood Products, market balance is expected to further soften both in birch and spruce plywood. In sawn timber, weak market continues. Combined with high cost of wood raw material, the result is not expected to improve from the loss made in the third quarter. Wood fibre costs are expected to stay at the current high level. However, due to cost savings from the ongoing profitability actions, an increase in the company’s overall costs for the full year is still expected to be about 2%. Demand outlook of UPM’s businesses for the fourth quarter has weakened from the outlook presented at the end of the second quarter. UPM’s operating profit for the fourth quarter of 2008, excluding special items and changes in the fair value of biological assets, is estimated to be about the same as last year.