Feb 07, 2005. /Lesprom Network/. Botnia’s turnover and profit both up in 2004
• Turnover Euro 1,063.0 million (1,006.4 million)
• Operating profit Euro 133.2 million (84.2 million)
• Profit before extraordinary items Euro 128.7 million (78.9 million)
• Investments Euro 88.2 million (85.0 million)
• Return on capital employed 10.8% (6.9%)
• Equity ratio 72.4% (70.3%)

All figures are unaudited

Turnover for the Metsä-Botnia Group rose 5.6% on the previous year to Euro 1,063.0 million (1,006.4). Turnover was boosted primarily by higher pulp prices and growth in sales volumes.

Profitability was also better than in 2003, and the financial result was good. Profit before extraordinary items was Euro 128.7 million (78.9). A higher capacity utilization rate, growth in sales volumes and higher market prices for softwood pulp were the main factors behind the improved financial result. The weakening of the dollar, however, had an adverse impact on profitability. The value of the euro averaged approximately $1.24 in 2004 as against $1.13 in 2003, i.e. the dollar was on average 9.9% weaker.

Return on capital employed in 2004 was 10.8% (6.9).

Equity ratio still high, net gearing low

Botnia’s financial position and liquidity remained strong during the year under review.

The equity ratio was 70.3% at the beginning of the year and 72.4% at the end. Net gearing fell to –5.4% (2.8). Interest-bearing net liabilities at the end of the year were Euro –59.4 million (28.8). No major new financing agreements were signed during the year.

Pulp prices higher towards year-end

Demand for pulp was good during the first half of the year and prices rose up until the summer.
In Europe, papermakers held their normal summer downtime, while pulp buyers in China limited their purchases in response to growing stocks. Pulp producer stocks consequently rose and pulp prices began to fall. Prices bottomed out in October and then embarked on a new rise. At the end of the year softwood pulp was selling at $620/t ($560 in January) and hardwood pulp at $520/t ($490 in January). The difference between softwood and hardwood pulp prices in 2004 averaged almost $100.

Euro-denominated sales prices for softwood pulp rose by 8% and for hardwood pulp decreased by 8% during the year.

New pulping capacity coming on stream worldwide in 2004 totalled 1,300,000 tonnes, of which 900,000 tonnes was softwood pulp. Over half a million tonnes of old pulping capacity was removed from the market towards the end of the year.

Botnia’s production and deliveries both up

Botnia’s pulp production in 2004 was 2,499,770 tonnes, an increase of 2.4% on the previous year’s figure of 2,391,394 tonnes.

Pulp deliveries were over 3% up on the year before. Sales totalled nearly 2.5 million tonnes (2.4). Botnia supplied 1.8 million tonnes to its owners (1.7) and rest of the production was sold to market customers. Softwood pulp accounted for nearly 70% of total sales and hardwood pulp for approximately 30%. Botnia’s pulp stocks were around normal at the end of the year.

More wood utilized

Botnia’s wood consumption rose to 12.75 million cubic metres (12.3). This comprised 6.2 million cubic metres of softwood pulpwood (5.9), 3.1 million cubic metres of softwood chips (3.1) and 3.2 million cubic metres of hardwood (3.1). Wood supplies to the mills went smoothly during the year.

Wood trading was brisk during the spring, but purchasing volumes in summer and autumn were below normal, causing wood reserves to fall below the levels targeted. Trading returned to normal at the end of the year. Wood prices at the mills decreased slightly from the previous year.

Ground conditions hindered wood transport during the autumn. Pulpwood stocks at the yearend were almost normal. Domestic wood represented a higher proportion of the total (88.9% as opposed to 87.5% in 2003).

All Botnia’s mills have the right to use the PEFC (Programme for the Endorsement of Forest Certification Schemes) label on their products. Wood procurement, pulp production and sales all comply with the requirements of the certificate. Certified forests supplied 76% of all wood procured.

Personnel

The focal points of human resources development in 2004 were the work of superiors and professional competence.

The Botnia Group had an average of 1,644 employees in 2004 (1,952). The number at the end of the year was 1,589 (1,901). The change in the number of employees is due to a change in the principles of consolidation.

As planned, all employees were covered by the profit-sharing scheme during the year under review.

Studies for Uruguay pulp mill project completed – environmental permit expected

In autumn 2003, Botnia began investigating the possibility of starting pulp production in Uruguay.
The first phase involved an environmental impact assessment and socio-economic survey for a possible pulp mill. These were completed during the first half of 2004. In October, the Uruguay government granted the project free trade zone status. An environmental permit for the project is expected in the near future. Technical planning for the mill, assembling the project organization and planning financing arrangements were started during 2004. The project is expected to be ready for a final decision during the first half of 2005.

Under a separate investment programme, Botnia’s subsidiary Compania Forestal Oriental S.A. (FOSA) has invested in acquiring forest and land and in expanding its planting and harvesting capacity. FOSA owned about 55,000 hectares of forest suitable for planting or already planted forest at 31 December 2004. The company owns a total of nearly 90,000 hectares of land area.

Botnia is also to build two mechanical wood-processing plants in Russia. Construction work on the first of these, a sawmill in the town of Podporodzhje in the Leningrad region, began early in the autumn. The second plant is planned for Suda in the Vologda region. The projects are aimed at securing supplies of raw material for production of high-quality reinforcement pulp and at paving the way for a pulp mill investment sometime in the future.

The most notable investment completed in Finland during the year concerned basic improvements to the recovery boiler at Äänekoski pulp mill.

Spotlight in 2005 on preparations for the Uruguay pulp mill project

Botnia’s main goals for 2005 include implementation of the Uruguay pulp mill project based on the company’s final decision and plan. The project would require substantial long-range financial, technical and expertise inputs.

Another important goal is to complete the Russian sawmill project and to lay the foundations for eventual pulp production in the region.

Other issues are further improving cost-effectiveness, particularly in Botnia’s domestic operations, pulp quality development and ensuring the continuous development of expertise.

Implementation of the Uruguay project will raise Botnia’s capital expenditure starting in 2005.
However, no significant investments are envisaged in Finland in the near future.

Outlook

The outlook for 2005 is bright. Paper mill capacity utilization rates are high worldwide, and demand for pulp is expected to be good, at least during the first half of the year. Prices are also expected to show an upward trend.

Considerable new hardwood pulping capacity is due to come on the market in 2005. The one million t/a mill started up in China in November 2004 will begin to affect the market during 2005, while a 900,000 t/a eucalyptus pulp mill is due to start up in Brazil in May.

Capacity utilization rates at pulp mills will be affected by wood supply problems in 2005. These problems mainly concern eastern Canada and the southern states of the US, where heavy rain hampers wood harvesting. The strong economic growth in China will continue in 2005, and this will sustain growth in demand for pulp. More than half of the growth in demand for pulp this year will come from China. In the short term, however, demand could fluctuate, and this could affect the trend in pulp prices.

Demand for pulp is likely to remain fairly good in Asia and North America in 2005. Pulp markets in Europe have also picked up slightly recently, although uncertainty over Europe’s economic growth still poses a threat to the future of the region’s pulp markets. The fall in the exchange rate for the dollar has affected the price competitiveness of European and Canadian importers, and changes in the value of the dollar will continue to pose a significant risk. However, despite these exchange rate uncertainties, Botnia expects its financial result for 2005 to be about the same as for 2004.