Apr 28, 2005. /Lesprom Network/. First-quarter results from two of the world's largest paper makers yesterday underlined how tough it remains to increase revenues in the publication-paper business in spite of price increases since the beginning of the year. Finland's UPM-Kymmene suffered a 7% sales drop to Euro 2.28 billion ($3 billion), after a strike at a mill in Canada, but managed to turn in pre- tax profits that quadrupled to Euro 249 million mainly because of cost-cutting and a one-time gain from the divestment of shares. Price rises averaging 6-8% for newsprint, and about half that amount for magazine papers, had only helped slightly. UPM-Kymmene lost some customers who resisted higher prices, Jussi Pesonen, chief executive, said. "In the second quarter, deliveries will be higher because advertising and demand is picking up and because of already agreed price increases," he said. His comments helped clarify the near-term prospects for publication paper after Swedish rival SCA earlier in the day suggested there was a supply-demand imbalance in publication paper, which made for unfavourable market conditions. UPM, the world's third-largest paper maker, derives two-thirds of its sales from magazine paper, newsprint and fine and speciality papers. Sweden's SCA, which is differentiated from traditional paper companies by a hygiene business that accounts for about half of sales, saw profits fall about 50% to SKr894 million ($127 million). The company, which is being challenged not only by other consumer products companies but also by discount retail chains in goods such as babies' nappies, had also miscalculated during the quarter by stepping up production capacity during a temporary slowdown in demand. SCA said that while demand remained strong in the tissue segment, the consumer sector of the market in Europe is characterised by overcapacity and price pressure. Its packaging businesses also suffered poor demand in Europe, while in personal care it now aims to meet intense competition by launching new products, such as improved nappies in Europe and new incontinence products in the US. It offered a dim view of the publication-paper segment, saying price increases of about 5% for newsprint were largely offset by rising energy and raw material costs and that supply-demand imbalances did not make for advantageous business conditions. Adjusted for comparability, including a one-off restructuring charge of SKr425 million, pre-tax profits fell 31% to SKr1.32 billion on sales that grew just 3.8% to SKr22.52 billion.