UPM-Kymmene Corporation Interim Report 29 October 2009 at 09:30 UPM Interim Report 1 January-30 September 2009 Earnings per share for the third quarter were EUR 0.08 (-0.17), and excluding special items EUR 0.14 (0.25). Operating profit excluding special items was EUR 131 million (216 million) and reported operating profit was EUR 96 million (loss of EUR 40 million). Strong cash flow due to continued actions to preserve cash: EUR 721 million reduction in net debt from last year. Savings in fixed costs total EUR 70 million in the third quarter from last year, EUR 240 million year to date. Key figures Q3/ Q3/ Q1-Q3/ Q1-Q3/ Q1-Q4/ 2009 2008 2009 2008 2008 Sales, EUR million 1,913 2,358 5,611 7,146 9,461 EBITDA,EUR million 1) 334 378 700 1,028 1,206 % of sales 17.5 16.0 12.5 14.4 12.7 Operating profit (loss), EUR 96 -40 9 310 24 million excluding special items, EUR 131 216 84 559 513 million % of sales 6.8 9.2 1.5 7.8 5.4 Profit (loss) before tax, EUR 64 -90 -124 159 -201 million excluding special items, EUR 99 160 -49 402 282 million Net profit (loss) for the 40 -87 -126 106 -180 period, EUR million Earnings per share, EUR 0.08 -0.17 -0.24 0.21 -0.35 excluding special items, EUR 0.14 0.25 -0.10 0.61 0.42 Diluted earnings per share, EUR 0.08 -0.17 -0.24 0.21 -0.35 Return on equity, % 2.8 neg. neg. 2.1 neg. excluding special items, % 5.0 7.8 neg. 6.3 3.4 Return on capital employed, % 3.5 neg. 0.0 3.7 0.2 excluding special items, % 4.9 7.7 0.9 6.6 4.6 Operating cash flow per 0.59 0.33 1.71 0.52 1.21 share, EUR Shareholders' equity per 11.13 12.54 11.13 12.54 11.74 share at end of period, EUR Gearing ratio at end of 64 67 64 67 71 period, % Net interest-bearing 3,688 4,409 3,688 4,409 4,321 liabilities at end of period, EUR million Capital employed at end of 10,172 11,310 10,172 11,310 11,193 period, EUR million Capital expenditure, EUR 39 164 172 438 551 million Personnel at end of period 23,180 25,616 23,180 25,616 24,983 1) EBITDA is operating profit before depreciation, amortisation 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. Results Q3 of 2009 compared with Q3 of 2008 Sales for the third quarter of 2009 were EUR 1,913 million, 19% lower than the EUR 2,358 million in the third quarter of 2008. Sales decreased due to lower deliveries and sales prices in most of UPM's business areas. Operating profit was EUR 96 million, 5.0% of sales (loss of EUR 40 million, -1.7% of sales). The operating profit excluding special items was EUR 131 million, 6.8% of sales (216 million, 9.2% of sales). Operating profit includes net charges of EUR 35 million as special items. Restructuring charges total EUR 18 million. The share of the results of associated companies includes special charges of EUR 17 million. Operating profit excluding special items declined from the same period last year. The main reasons for weaker profitability were lower sales prices and significantly lower deliveries in most of UPM's business areas. The average paper price in euro decreased by approximately 6% from the same period last year. The average price for label materials was slightly higher. Timber and plywood prices fell substantially. Changes in sales prices in euro terms reduced operating profit by about EUR 140 million. UPM continued its flexible operating mode in all of its business areas, adjusting production to the low demand. Due to cost saving measures and temporary layoffs, the company's fixed costs decreased by EUR 70 million in comparison to the same period last year. Wood costs decreased from the earlier peak levels. Compared with the same quarter last year, wood costs decreased by EUR 80 million. Other variable costs also decreased. Energy costs decreased slightly. The decrease in the fair value of biological assets net of wood harvested was EUR 13 million compared to an increase of EUR 4 million a year before. The share of results of associated companies and joint ventures was EUR 21 million negative (35 million positive). The accounting treatment of the associated company Metsä-Botnia has changed from 30 June 2009 (see Pulp business area footnote 3). The result includes special charges of EUR 17 million related to Pohjolan Voima's two power plants. Profit before tax was EUR 64 million (loss of EUR 90 million) and excluding special items EUR 99 million (profit of EUR 160 million). Interest and other finance costs, net, were EUR 28 million (50 million). Exchange rate and fair value gains and losses resulted in a loss of EUR 3 million (0 million). Income taxes were EUR 24 million (3 million positive). The impact on taxes from special items was EUR 3 million positive (36 million positive). Profit for the third quarter was EUR 40 million (loss of EUR 87 million) and earnings per share were EUR 0.08 (-0.17). Earnings per share excluding special items were EUR 0.14 (0.25). January-September of 2009 compared with January-September of 2008 Sales for January-September were EUR 5,611 million, 21% lower than the EUR 7,146 million in the same period in 2008. Sales decreased due to lower deliveries across all of UPM's business areas. Operating profit was EUR 9 million, 0.2% of sales (310 million, 4.3% of sales). The operating profit excluding special items was EUR 84 million, 1.5% of sales (559 million, 7.8% of sales). Operating profit includes net charges of EUR 75 million as special items. UPM sold assets related to the former Miramichi paper mill in Canada and recorded an income of EUR 21 million. Restructuring measures resulted in net special charges of EUR 50 million. The share of the results of associated companies includes special charges of EUR 46 million. Operating profit declined clearly from the same period last year. The main reason for weaker profitability was significantly lower deliveries in all of UPM's business areas. UPM responded to lower demand with a flexible way of operating in all of its business areas, using temporary capacity shutdowns to adjust production to the low demand. Due to cost saving measures and temporary layoffs, the company's fixed costs decreased by EUR 240 million in comparison to the same period last year. Wood costs started to decrease during the period from the earlier peak levels. Compared with last year, wood costs decreased by EUR 110 million. Energy costs increased by EUR 50 million. Other variable costs decreased. The average paper price in euro decreased by approximately 1% from the same period last year. The average price for label materials was about 6% higher. Timber and plywood prices fell substantially. Changes in sales prices in euro terms reduced operating profit by about EUR 100 million. The increase in the fair value of biological assets net of wood harvested was EUR 8 million compared to EUR 52 million a year before. The share of results of associated companies and joint ventures was EUR 96 million negative (78 million positive). The result includes special charges of EUR 29 million from Metsä-Botnia's Kaskinen pulp mill closure, and of EUR 17 million related to Pohjolan Voima's two power plants. Loss before tax was EUR 124 million (profit of EUR 159 million) and excluding special items the loss was EUR 49 million (profit of EUR 402 million). Interest and other finance costs, net, were EUR 123 million (142 million). Exchange rate and fair value gains and losses resulted in a loss of EUR 9 million (11 million). Income taxes were EUR 2 million (53 million). The impact on taxes from special items was EUR 3 million positive (35 million positive). Loss for the period was EUR 126 million (profit of EUR 106 million) and earnings per share were EUR -0.24 (0.21). Earnings per share excluding special items were EUR -0.10 (0.61). Operating cash flow per share was EUR 1.71 (0.52). Financing In January-September, cash flow from operating activities, before capital expenditure and financing, was EUR 889 million (271 million). Net working capital decreased by EUR 437 million during the period (increased by EUR 329 million). The gearing ratio as of 30 September 2009 was 64% (67% on 30 September 2008). Net interest-bearing liabilities at the end of the period came to EUR 3,688 million (4,409 million). In March 2009, UPM replaced the EUR 1.5 billion credit facility that was to mature in 2010 with a new EUR 825 million credit facility, maturing in 2012. On 30 September 2009, UPM's cash funds and unused committed credit facilities totalled EUR 2.2 billion. Personnel In January-September, UPM had an average of 23,826 employees (26,283). At the beginning of the year, the number of employees was 24,983 and at the end of September it was 23,180. The reduction of 1,803 employees is mostly attributable to ongoing restructuring. Capital expenditure During January-September, capital expenditure was EUR 172 million, 3.1% of sales (438 million, 6.1% of sales). The new renewable energy power plant at the Caledonian mill in Irvine, Scotland was started in June. The total investment cost was GBP 68 million. UPM continued its tight investment discipline during the first nine months of 2009. Few new investment decisions were made. The largest ongoing project is now the rebuild of the debarking plant at the Pietarsaari mill in Finland. The total investment cost is estimated to be EUR 30 million. Restructuring Botnia's ownership On 15 July 2009, UPM, Metsäliitto Cooperative and M-real Corporation signed a letter of intent to restructure the ownership of the assets of Oy Metsä-Botnia Ab (Botnia). According to the letter of intent, UPM would receive Metsäliitto's and Botnia's shares of the Fray Bentos pulp mill and the eucalyptus plantation forestry company Forestal Oriental in Uruguay, and UPM would dispose of part of its current 47% ownership in Botnia. In the transaction, the enterprise value of the pulp mill and Forestal Oriental totals approximately EUR 1.6 billion and the enterprise value of Botnia without the Uruguayan operations and shareholding in Pohjolan Voima Oy is approximately EUR 1.9 billion. Following the restructuring, Metsäliitto's holding in Botnia would be 53%, M-real's 30%, and UPM's 17%. UPM would have 91% ownership in the Fray Bentos pulp mill and 100% in Forestal Oriental. On the basis of the 17% holding in Botnia, UPM would have a 400,000-tonne share of the pulp production capacity of Botnia's Finnish mills. UPM's own annual production capacity would increase from 2.1 million tonnes to 3.2 million tonnes a year. In addition, UPM would acquire 1.2% of the energy company Pohjolan Voima Oy from Botnia for EUR 66 million. The agreement was signed after the balance sheet date, on 22 October 2009. Shares UPM shares worth EUR 4,382 million (7,963 million) in total were traded on the NASDAQ OMX Helsinki stock exchange during January-September of 2009. The highest quotation was EUR 9.78 in January and the lowest EUR 4.33 in April. The company's ADSs are traded on the US over-the-counter (OTC) market under a Level 1 sponsored American Depositary Receipt programme. The Annual General Meeting held on 25 March 2009 approved a proposal by the Board of Directors to authorise the Board of Directors to decide on the buy-back of not more than 51,000,000 own shares. The authorisation is valid for 18 months from the date of the decision. The Annual General Meeting of 27 March 2007 decided to authorise the Board to decide on a free issue of shares 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 authorisation may not exceed 1/10 of the total number of shares in the company. In addition, the Board has the authority to decide to issue shares and special rights entitling the holder to shares of the company. The number of new shares to be issued, including shares to be obtained under special rights, shall be no more than 250,000,000. Of that, 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. Furthermore, the Board is authorised to decide on the disposal of own shares. To date, this authorisation has not been used. These authorisations of the Annual General Meeting 2007 will remain valid for no more than three years from the date of the decision. The AGM of 27 March 2007 also decided on granting share options in connection with the company's share-based incentive plans. In option programmes 2007A, 2007B and 2007C, the total number of share options is no more than 15,000,000 and they will entitle the holders to subscribe for a total of no more than 15,000,000 new shares in the company. Apart from the above, the Board of Directors has no current authorisation to issue shares, convertible bonds or share options. The number of shares entered in the Trade Register on 30 September 2009 was 519,970,088. Through the issuance authorisation and share options, the number of shares may increase to a maximum of 790,970,088. At the end of the period, the company held 15,944 of its own shares, or 0.003% of the total number of shares, which have been granted under the Group's share reward scheme. These shares have been returned to the company in connection with the termination of employment contracts. Litigation and other legal actions Certain competition authorities are continuing investigations into alleged antitrust activities with respect to various UPM products. The authorities have granted UPM conditional full immunity with respect to certain conduct disclosed to them. UPM has settled or agreed to settle the class-action lawsuits in the US except for those filed by indirect purchasers of labelstock. The remaining litigation matters may last several years. No provisions have been made in relation to these investigations. In Finland, UPM is participating in the country's fifth nuclear power plant unit, Olkiluoto 3, through its associated company Pohjolan Voima Oy. Pohjolan Voima Oy is with 58.12% a majority shareholder of Teollisuuden Voima Oy ("TVO"). In January 2009, the constructor TVO disclosed information, confirmed by the plant supplier, consortium AREVA-Siemens, that the construction of the unit is delayed and the unit is estimated to start up in summer 2012. In October 2009 TVO disclosed that the start-up of the unit may be delayed even beyond June 2012 and that TVO has requested the plant supplier to provide a re-analysis of the anicipated start-up time. In June 2009, TVO informed that the arbitration filed in December by AREVA-Siemens, concerning Olkiluoto 3 delay and related costs amounted to EUR 1.0 billion. In response, TVO has filed in April 2009 a counter-claim for costs and losses that TVO is incurring due to the delay and other defaults on the part of the supplier. The value of TVO's counterclaim is currently approximately EUR 1.4 billion. Events after the balance sheet date On 22 October 2009, UPM, Metsäliitto Cooperative, M-real Corporation, and Oy Metsä-Botnia Ab signed the agreement to restructure the ownership of the assets of Metsä-Botnia. The agreement is subject to required regulatory approvals and agreements with lenders. These are expected to be finalised, at the latest, during the first quarter of 2010. Outlook for the fourth quarter of 2009 Economic activity in UPM's main markets has shown signs of improvement. Leading economic indicators such as consumer confidence have clearly improved since March this year. However, recession continues to have an impact on consumer demand, construction activity, and advertising expenditure in print media and thus on demand for all of UPM's products. UPM will continue to curtail production in most of its businesses to respond to the changes in market demand. Chemical pulp deliveries from UPM's own pulp mills are expected be about the same as during the third quarter but with higher average price. UPM's paper deliveries for the fourth quarter are forecast to be about the same as during the third quarter. Pressure on paper prices is expected to continue and average price for paper deliveries in euro is expected to be lower than during the third quarter. Recovery of demand for self-adhesive labelstock in the main markets is expected to continue. Prices are estimated to be stable but anticipated increases in raw material costs will put pressure on profitability. Demand for birch and spruce plywood is forecast to show slight improvement from the third quarter. Average price is estimated to be about the same as during the third quarter. Compared to the third quarter, variable costs are estimated to remain at the same level. Fixed costs for the full year are estimated to be close to EUR 300 million lower than last year. Business area reviews Energy Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ 2009 2009 2009 2008 2008 2008 2008 Sales, EUR million 108 100 136 141 129 103 105 EBITDA,EUR million 1) 35 41 57 76 58 34 39 % of sales 32.4 41.0 41.9 53.9 45.0 33.0 37.1 Share of results of -24 -4 -4 -11 -8 -2 -5 associated companies and joint ventures, EUR million Depreciation, amortisation -1 -1 -2 -3 -1 -1 -1 and impairment charges, EUR million Operating profit, EUR million 10 36 51 62 49 31 33 % of sales 9.3 36.0 37.5 44.0 38.0 30.1 31.4 Special items,EUR million 2) -17 - - - - - - Operating profit excl. 27 36 51 62 49 31 33 special items, EUR million % of sales 25.0 36.0 37.5 44.0 38.0 30.1 31.4 Electricity deliveries, 1,000 2,103 1,999 2,486 2,731 2,653 2,344 2,439 MWh Q1-Q3/ Q1-Q3/ Q1-Q4/ 2009 2008 2008 Sales, EUR million 344 337 478 EBITDA,EUR million 1) 133 131 207 % of sales 38.7 38.9 43.3 Share of results of -32 -15 -26 associated companies and joint ventures, EUR million Depreciation, amortisation -4 -3 -6 and impairment charges, EUR million Operating profit, EUR million 97 113 175 % of sales 28.2 33.5 36.6 Special items,EUR million 2) -17 - - Operating profit excl. 114 113 175 special items, EUR million % of sales 33.1 33.5 36.6 Electricity deliveries, 1,000 6,588 7,436 10,167 MWh 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In 2009, special items of EUR 17 million relate to impairments of associated company Pohjolan Voima's two power plants. Q3 of 2009 compared with Q3 of 2008 Operating profit excluding special items was EUR 27 million, EUR 22 million lower than last year (49 million). Sales decreased by 16% to EUR 108 million (129 million), of which EUR 24 million was external sales (45 million). The electricity sales volume was 2.1 TWh in the quarter (2.7 TWh). The share of results of associated companies includes asset write-downs of EUR 17 million related to Pohjolan Voima's two power plants. January-September 2009 compared with January-September 2008 Operating profit excluding special items was EUR 114 million (113 million). Sales increased by 2% to EUR 344 million (337 million), of which EUR 97 million was external sales (80 million). Internal sales decreased by 4% due to lower energy consumption in the company's own mills. The electricity sales volume was 6.6 TWh (7.4 TWh) as the hydropower volume was almost 22% lower than last year. Profitability improved slightly in comparison with the previous year, due to the higher average electricity sales price. The average electricity sales price increased by 21% to EUR 43.1/MWh (35.7/MWh). The average cost of procured electricity increased due to lower share of hydro power volumes. The share of results of associated companies includes asset write-downs of EUR 17 million related to Pohjolan Voima's two power plants. Market review The average electricity price in the Nordic electricity exchange in the first nine months of the year decreased to EUR 34.5/MWh (42.7/ MWh). The consumption of electricity in the Nordic area decreased due to low industrial activity. Oil and coal market prices were lower compared to the same period last year. CO2 emission allowance prices decreased. The one-year forward electricity price in the Nordic electricity exchange averaged EUR 35.9/MWh in the first nine months of the year, 37% lower than in the same period last year (57.1/MWh). In the first half of the year the Nordic water reservoirs were below the long-term average but returned to the normal level towards the end of the period. Pulp Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q3/ 2009 2009 2009 2008 2008 2008 2008 2009 Sales, EUR million 156 132 139 200 228 247 269 427 EBITDA,EUR million 1) 8 -24 -55 9 38 35 57 -71 % of sales 5.1 -18.2 -39.6 4.5 16.7 14.2 21.2 -16.6 Share of results of 4 -16 -47 -4 44 20 26 -59 associated companies and joint ventures,EUR million 3) Depreciation, amortisation -21 -20 -20 -73 -22 -17 -16 -61 and impairment charges, EUR million Operating profit, EUR million -9 -60 -122 -76 60 38 67 -191 % of sales -5.8 -45.5 -87.8 -38.0 26.3 15.4 24.9 -44.7 Special items,EUR million 2) - - -29 -59 - - - -29 Operating profit excl. -9 -60 -93 -17 60 38 67 -162 special items, EUR million % of sales -5.8 -45.5 -66.9 -8.5 26.3 15.4 24.9 -37.9 Pulp deliveries, 1,000 t 446 391 372 421 480 527 554 1,209 Q1-Q3/Q1-Q4/ 2008 2008 Sales, EUR million 744 944 EBITDA,EUR million 1) 130 139 % of sales 17.5 14.7 Share of results of 90 86 associated companies and joint ventures,EUR million 3) Depreciation, amortisation -55 -128 and impairment charges, EUR million Operating profit, EUR million 165 89 % of sales 22.2 9.4 Special items,EUR million 2) - -59 Operating profit excl. 165 148 special items, EUR million % of sales 22.2 15.7 Pulp deliveries, 1,000 t 1,561 1,982 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In 2009, special items of EUR 29 million relate to the associated company Metsä-Botnia's Kaskinen pulp mill closure. In 2008, special items of EUR 59 million relate to the closure of the Tervasaari pulp mill. 3) In the balance sheet in the interim report for January-June, on 30 June 2009, UPM has regrouped the 30% transferable share of Botnia's book value as assets held for sale. Consequently, from July 2009, UPM will not include the share of the transferable Botnia operations in the share of results of associated companies. Post transaction, UPM will record its 17% ownership in Botnia among its financial assets. Q3 of 2009 compared with Q3 of 2008 Operating loss excluding special items was EUR 9 million (profit of EUR 60 million). The sales of UPM's own pulp mills decreased by 32% to EUR 156 million (228 million) and deliveries by 7% to 446,000 tonnes (480,000). The share of results of the associated company Metsä-Botnia was profit of EUR 4 million (profit of EUR 44 million). January-September 2009 compared with January-September 2008 Operating loss excluding special items was EUR 162 million (profit of EUR 165 million). The sales of UPM's own pulp mills decreased by 43% to EUR 427 million (744 million) and deliveries by 23% to 1,209,000 tonnes (1,561,000). Due to reduced internal consumption, the Tervasaari pulp mill closure at the end of 2008 did not have a notable impact on deliveries. Profitability weakened from the same period last year, mainly due to the lower deliveries and approximately 26% lower average pulp price. Wood costs remained at a high level. Chemical pulp inventories decreased from the beginning of the year due to extended shutdowns. The share of results of the associated company Metsä-Botnia was loss of EUR 59 million (profit of EUR 90 million). The result includes special charges of EUR 29 million from Metsä-Botnia's Kaskinen mill closure. Market review In the first half of 2009, shipments declined from the comparison period, but in the third quarter the shipments increased due to strong demand in China. In the first nine months of 2009, global chemical market pulp shipments were slightly below last year's level. Chemical pulp producer inventories declined from the high level of the beginning of the year due to extensive production curtailments and strong demand in China. Chemical pulp market prices declined in the first half of the year but started to increase during the third quarter. The average softwood pulp (NBSK) market price in euro terms, at EUR 454/tonne, was 22% lower than in the same period last year (EUR 584/tonne). The bottom market price during the period was EUR 421/tonne. At the end of the period the NBSK market price was EUR 491/ tonne. The average hardwood pulp (BHKP) market price in euro terms also decreased by 29% from last year to EUR 385/tonne (EUR 539/tonne). The bottom market price during the period was EUR 352/tonne. At the end of the period the BHKP market price was EUR 408/ tonne. Forest and timber Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q3/ 2009 2009 2009 2008 2008 2008 2008 2009 Sales, EUR million 295 309 385 419 475 518 508 989 EBITDA,EUR million 1) 24 -15 -15 -52 -4 4 4 -6 % of sales 8.1 -4.9 -3.9 -12.4 -0.8 0.8 0.8 -0.6 Change in fair value of -13 10 11 -2 4 20 28 8 biological assets and wood harvested, EUR million Share of results of -1 1 1 -1 - - 1 1 associated companies and joint ventures, EUR million Depreciation, amortisation -4 -14 -5 -6 -36 -7 -7 -23 and impairment charges, EUR million Operating profit, EUR 6 -18 -18 -63 -38 17 25 -30 million % of sales 2.0 -5.8 -4.7 -15.0 -8.0 3.3 4.9 -3.0 Special items,EUR million 2) 1 -8 -10 -2 -33 - -1 -17 Operating profit excl. 5 -10 -8 -61 -5 17 26 -13 special items, EUR million % of sales 1.7 -3.2 -2.1 -14.6 -1.1 3.3 5.1 -1.3 Sawn timber deliveries, 1,000 355 366 363 421 510 628 573 1,084 m3 Q1-Q3/Q1-Q4/ 2008 2008 Sales, EUR million 1,501 1,920 EBITDA,EUR million 1) 4 -48 % of sales 0.3 -2.5 Change in fair value of 52 50 biological assets and wood harvested, EUR million Share of results of 1 - associated companies and joint ventures, EUR million Depreciation, amortisation -50 -56 and impairment charges, EUR million Operating profit, EUR million 4 -59 % of sales 0.3 -3.1 Special items,EUR million 2) -34 -36 Operating profit excl. 38 -23 special items, EUR million % of sales 2.5 -1.2 Sawn timber deliveries, 1,000 1,711 2,132 m3 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) Special items for the second quarter of 2009 include impairment charges of EUR 8 million related to wood procurement operations. In the first quarter of 2009, special items of EUR 10 million relate to the sales loss of Miramichi's forestry and sawmilling operations' assets. Special items in 2008 include an impairment charge of EUR 31 million related to fixed assets of the Finnish sawmills. Q3 of 2009 compared with Q3 of 2008 Operating profit excluding special items was EUR 5 million (loss of EUR 5 million). Sales declined by 38% to EUR 295 million (475 million). Sawn timber deliveries decreased by 30% to 355,000 cubic metres (510,000). The increase in the fair value of biological assets (growing trees) was EUR 11 million (34 million). The cost of wood raw material harvested from the Group's own forests was EUR 24 million (30 million). The net effect was EUR 13 million negative (4 million positive). January-September 2009 compared with January-September 2008 Operating loss excluding special items was EUR 13 million (profit of EUR 38 million). Sales declined by 34% to EUR 989 million (1,501 million). Sawn timber deliveries decreased by 37% to 1,084,000 cubic metres (1,711,000). Profitability weakened from the same period last year mainly due to lower increase in the fair value of biological assets. Timber deliveries were lower and average price of delivered timber goods decreased approximately by 11%. Wood inventories decreased. The increase in the fair value of biological assets (growing trees) was EUR 46 million (126 million). The cost of wood raw material harvested from the Group's own forests was EUR 38 million (74 million). The net effect was EUR 8 million positive (52 million positive). Market review Forest Wood purchases in the Finnish wood market were 74% lower compared to the same period last year. However, the market activity started to recover slightly towards the end of the period, even though they still remained at a low level. Industry's lower production and high wood inventories at the beginning of the year were the main reasons for lower purchases. Wood market prices declined by an average of about 15% compared to the same period in the previous year. Timber During the first nine months of the year, demand for both redwood and whitewood sawn timber in Europe declined substantially in comparison with the previous year. The weak market balance resulted in significantly lower prices. Paper Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ 2009 2009 2009 2008 2008 2008 2008 Sales, EUR million 1,454 1,388 1,367 1,750 1,761 1,727 1,773 EBITDA,EUR million 1) 274 247 187 189 271 216 209 % of sales 18.8 17.8 13.7 10.8 15.4 12.5 11.8 Share of results of - -1 -1 1 - - - associated companies and joint ventures, EUR million Depreciation, amortisation -142 -147 -149 -264 -388 -156 -159 and impairment charges, EUR million Operating profit, EUR million 126 85 60 -126 -114 60 51 % of sales 8.7 6.1 4.4 -7.2 -6.5 3.5 2.9 Special items,EUR million 2) -6 -10 23 -153 -227 - 1 Operating profit excl. 132 95 37 27 113 60 50 special items, EUR million % of sales 9.1 6.8 2.7 1.5 6.4 3.5 2.8 Deliveries, publication 1,464 1,323 1,304 1,809 1,760 1,749 1,772 papers, 1,000 t Deliveries, fine and 872 813 724 784 863 923 981 speciality papers, 1,000 t Paper deliveries total, 1,000 2,336 2,136 2,028 2,593 2,623 2,672 2,753 t Q1-Q3/ Q1-Q3/ Q1-Q4/ 2009 2008 2008 Sales, EUR million 4,209 5,261 7,011 EBITDA,EUR million 1) 708 696 885 % of sales 16.8 13.2 12.6 Share of results of -2 - 1 associated companies and joint ventures, EUR million Depreciation, amortisation -438 -703 -967 and impairment charges, EUR million Operating profit, EUR million 271 -3 -129 % of sales 6.4 -0.1 -1.8 Special items,EUR million 2) 7 -226 -379 Operating profit excl. 264 223 250 special items, EUR million % of sales 6.3 4.2 3.6 Deliveries, publication 4,091 5,281 7,090 papers, 1,000 t Deliveries, fine and 2,409 2,767 3,551 speciality papers, 1,000 t Paper deliveries total, 1,000 6,500 8,048 10,641 t 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In the third quarter of 2009, special items of EUR 6 million relate to restructuring charges. Special items for the second quarter of 2009 include charges of EUR 9 million related to personnel reduction in Nordland mill, impairment reversals of EUR 4 million and other restructuring charges of EUR 5 million. In the first quarter of 2009, special items include an income of EUR 31 million related to the sale of the assets of the former Miramichi paper mill and charges of EUR 8 million related to restructuring measures. In 2008, special items include the goodwill impairment charge of EUR 230 million, impairment charges of EUR 101 million and other restructuring costs of EUR 42 million related to the closure of the Kajaani paper mill, and other restructuring costs, net of EUR 6 million. Q3 of 2009 compared with Q3 of 2008 Operating profit excluding special items was EUR 132 million, EUR 19 million higher than a year ago (113 million). Sales were EUR 1,454 million (1,761 million). Paper deliveries decreased by 11% to 2,336,000 tonnes (2,623,000). Publication paper deliveries (magazine papers and newsprint) decreased by 17%. Fine and speciality paper deliveries increased by 1% from the previous year, especially driven by demand recovery in China. Profitability improved from the comparison period due to decreased costs. Lower paper prices and paper deliveries had a significant negative impact on profitability, but this was offset by lower fibre costs, mainly for chemical pulp, and decreased fixed costs. The average price for all paper deliveries when translated into euros was 6% lower than in the third quarter of 2008. January-September 2009 compared with January-September 2008 Operating profit excluding special items was EUR 264 million, EUR 41 million higher than a year ago (223 million). Sales were EUR 4,209 million (5,261 million). Paper deliveries decreased by 19% to 6,500,000 tonnes (8,048,000). Publication paper deliveries (magazine papers and newsprint) decreased by 23% and fine and speciality paper deliveries by 13% from the previous year. The Kajaani paper mill was closed at the end of 2008. Due to the reduced demand, the closure had only minor impact on UPM's paper deliveries. Profitability improved from the corresponding period last year due to decreased costs. Lower deliveries had a significant negative impact on profitability, but this was offset by lower costs for fibre, mainly for chemical pulp. Fixed costs decreased significantly. The average price for all paper deliveries when translated into euros was 1% lower than last year. Market review In Europe, during the first nine months of the year, demand for publication papers was 16% lower and for fine papers 18% lower than a year ago. In North America, demand for publication papers continued to decline and was 25% down from last year. In Asia, however, demand for fine papers grew from last year. In Europe, paper prices decreased in the third quarter of 2009 from the previous quarter. For magazine papers, prices decreased by about 3% from the second quarter and for newsprint by about 1%. Coated fine paper prices decreased by about 3% and uncoated fine paper prices by about 2%. In the first nine months of the year, average prices increased by 1% for magazine papers, 2% for newsprint and 2% for coated fine papers, but decreased by 7% for uncoated fine papers from last year. In North America, the average US dollar prices for magazine papers were 11% lower compared to the first nine months of 2008. In Asia, market prices for fine papers decreased from last year, but increased in the third quarter of 2009 from the second quarter of 2009. Label Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q3/ 2009 2009 2009 2008 2008 2008 2008 2009 Sales, EUR million 242 226 223 233 239 245 242 691 EBITDA,EUR million 1) 29 18 6 -1 9 15 11 53 % of sales 12.0 8.0 2.7 -0.4 3.8 6.1 4.5 7.7 Depreciation, amortisation -9 -11 -9 -16 -8 -7 -8 -29 and impairment charges, EUR million Operating profit, EUR million 18 4 -3 -38 1 8 3 19 % of sales 7.4 1.8 -1.3 -16.3 0.4 3.3 1.2 2.7 Special items,EUR million 2) -2 -5 - -28 - - - -7 Operating profit excl. 20 9 -3 -10 1 8 3 26 special items, EUR million % of sales 8.3 4.0 -1.3 -4.3 0.4 3.3 1.2 3.8 Q1-Q3/Q1-Q4/ 2008 2008 Sales, EUR million 726 959 EBITDA,EUR million 1) 35 34 % of sales 4.8 3.5 Depreciation, amortisation -23 -39 and impairment charges, EUR million Operating profit, EUR 12 -26 million % of sales 1.7 -2.7 Special items,EUR million 2) - -28 Operating profit excl. 12 2 special items, EUR million % of sales 1.7 0.2 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In the third quarter of 2009, special items of EUR 2 million relate to restructuring charges. In the second quarter of 2009, special items include impairment charges of EUR 2 million and other restructuring charges of EUR 3 million. In 2008, special items of EUR 28 million relate to measures to reduce coating capacity and close two slitting terminals in Europe. Q3 of 2009 compared with Q3 of 2008 Operating profit excluding special items was EUR 20 million (1 million). Sales were EUR 242 million (239 million). Profitability improved clearly from the same period last year. The main reasons were lower raw material costs and fixed costs. Average sales prices converted to euros increased slightly from last year and remained stable from the previous quarter. The delivery volumes of self-adhesive label materials were at the same level as last year. January-September 2009 compared with January-September 2008 Operating profit excluding special items was EUR 26 million (12 million). Sales were EUR 691 million (726 million). Profitability improved from the same period last year due to decreased costs and increased prices. Delivery volumes of self-adhesive label materials declined by some 10% from last year, driven by lower economic activity. While lower delivery volumes had a significant negative impact on operating profit, this was offset by reductions in fixed costs. Average sales prices converted to euros increased by about 6% from last year. Raw material costs remained roughly on last year's level. In 2008, UPM Raflatac opened two new labelstock factories; one in Dixon, USA in January and another in Wroclaw, Poland in November. The restructuring of European operations, announced in the fourth quarter of 2008, was completed as planned by the end of the third quarter. The restructuring, combined with the new plant in Wroclaw, has significantly improved the competitiveness of UPM's European operations. Market review During the first half of the year, demand for self-adhesive label materials declined in all markets from last year as demand for consumer products and shipments of goods slowed down. In the third quarter, however, demand in Asia is estimated to have grown and in Europe and North America to have recovered close to the level of the same quarter last year. The market prices in euro terms were higher than in the comparison period. In the third quarter of 2009, prices remained stable compared with the previous quarter. Plywood Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q3/ 2009 2009 2009 2008 2008 2008 2008 2009 Sales, EUR million 73 77 75 102 121 150 157 225 EBITDA,EUR million 1) -5 -5 -23 -5 3 22 26 -33 % of sales -6.8 -6.5 -30.7 -4.9 2.5 14.7 16.6 -14.7 Depreciation, amortisation -5 -5 -5 -5 -5 -6 -5 -15 and impairment charges, EUR million Operating profit, EUR -10 -10 -29 -10 -2 19 21 -49 million % of sales -13.7 -13.0 -38.7 -9.8 -1.7 12.7 13.4 -21.8 Special items,EUR million 2) - - -1 - - 3 - -1 Operating profit excl. -10 -10 -28 -10 -2 16 21 -48 special items, EUR million % of sales -13.7 -13.0 -37.3 -9.8 -1.7 10.7 13.4 -21.3 Deliveries, plywood, 1,000 m3 143 141 133 160 188 227 231 417 Q1-Q3/Q1-Q4/ 2008 2008 Sales, EUR million 428 530 EBITDA,EUR million 1) 51 46 % of sales 11.9 8.7 Depreciation, amortisation -16 -21 and impairment charges, EUR million Operating profit, EUR 38 28 million % of sales 8.9 5.3 Special items,EUR million 2) 3 3 Operating profit excl. 35 25 special items, EUR million % of sales 8.2 4.7 Deliveries, plywood, 1,000 m3 646 806 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) Special items in 2008 include reversals of provisions related to the disposed Kuopio plywood mill. Q3 of 2009 compared with Q3 of 2008 Operating loss excluding special items was EUR 10 million (loss of EUR 2 million). Sales decreased to EUR 73 million (121 million), as plywood deliveries declined by 24% to 143,000 cubic metres (188,000). Plywood reported an operating loss due to significantly lower delivery volumes and sales prices than in the comparison period. January-September 2009 compared with January-September 2008 Operating loss excluding special items was EUR 48 million (profit of EUR 35 million). Sales nearly halved to EUR 225 million (428 million), as plywood deliveries declined by 35% to 417,000 cubic metres (646,000). Plywood reported an operating loss due to significantly lower delivery volumes and sales prices than in the comparison period. Material fixed cost reductions were implemented throughout the organisation, but these could not compensate for the adverse impact of deliveries and prices. Weak market demand led to extensive production downtime at all mills. The Heinola mill was temporarily shut down from January 2009 onwards. The Kaukas plywood mill was temporarily shut down from May onwards. In April it was announced that operations at the Lahti mill will be moved to other mills by the end of the year. At the Kalso veneer mill, a production automation project was completed in May 2009. Market review In Europe, plywood demand declined substantially from last year due to record low construction activity and demand for engineered end products in transportation and other industrial end uses. Declining demand in Europe has left much idle capacity. Inventories were reduced in all parts of the supply chain in the first half of the year. This inventory reduction came to an end in the third quarter. The market prices of plywood declined from the previous year. Other operations Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/Q1-Q3/ 2009 2009 2009 2008 2008 2008 2008 2009 Sales, EUR million 21 21 34 34 52 66 48 76 EBITDA,EUR million 1) -31 -24 -29 -38 3 -13 -9 -84 Share of results of - -2 -2 -1 -1 3 - -4 associated companies and joint ventures, EUR million Depreciation, amortisation -3 -3 -3 2 -2 -5 -3 -9 and impairment charges, EUR million Operating profit, EUR million -45 -29 -34 -35 4 -16 -7 -108 Special items,EUR million 2) -11 - - 2 4 -1 5 -11 Operating profit excl. -34 -29 -34 -37 0 -15 -12 -97 special items, EUR million Q1-Q3/Q1-Q4/ 2008 2008 Sales, EUR million 166 200 EBITDA,EUR million 1) -19 -57 Share of results of 2 1 associated companies and joint ventures, EUR million Depreciation, amortisation -10 -8 and impairment charges, EUR million Operating profit, EUR million -19 -54 Special items,EUR million 2) 8 10 Operating profit excl. -27 -64 special items, EUR million 1) EBITDA is operating profit before depreciation, amortisation and impairment charges, excluding the change in value of biological assets and wood harvested, the share of results of associated companies and joint ventures, and special items. 2) In 2009, special items of EUR 11 million relate mainly to estates of closed industrial sites in Finland. In 2008, special items include an adjustment of EUR 5 million to sales of disposals of 2007 and other restructuring income net of EUR 5 million. Other operations include development units (RFID tags, the wood plastic composite unit UPM ProFi and biofuels), logistic services and corporate administration. Q3 of 2009 compared with Q3 of 2008 Operating loss excluding special items was EUR 34 million (0 million). Sales amounted to EUR 21 million (52 million). The operating loss was greater than in the comparison period, mainly due to hedging losses of EUR 16 million (profit of EUR 5 million). The development units continued to incur an operating loss. January-September 2009 compared with January-September 2008 Operating loss excluding special items was EUR 97 million (loss of EUR 27 million). Sales amounted to EUR 76 million (166 million). The operating loss was greater than in the comparison period, mainly due to hedging losses of EUR 25 million (profit of EUR 22 million) and losses of the development units. Helsinki, 29 October 2009 UPM-Kymmene Corporation Board of Directors Financial information This Interim Report is unaudited Consolidated income statement EUR million Q3/ Q3/ Q1-Q3/ Q1-Q3/ Q1-Q4/ 2009 2008 2009 2008 2008 Sales 1,913 2,358 5,611 7,146 9,461 Other operating income 5 23 29 74 83 Costs and expenses -1,603 -1,998 -4,964 -6,180 -8,407 Change in fair value of -13 4 8 52 50 biological assets and wood harvested Share of results of -21 35 -96 78 62 associated companies and joint ventures Depreciation, amortisation -185 -462 -579 -860 -1,225 and impairment charges Operating profit (loss) 96 -40 9 310 24 Gains on available-for-sale -1 - -1 2 2 investments, net Exchange rate and fair value -3 - -9 -11 -25 gains and losses Interest and other finance -28 -50 -123 -142 -202 costs, net Profit (loss) before tax 64 -90 -124 159 -201 Income taxes -24 3 -2 -53 21 Profit (loss) for the period 40 -87 -126 106 -180 Attributable to: Equity holders of the parent 40 -86 -126 108 -179 company Minority interest - -1 - -2 -1 40 -87 -126 106 -180 Earnings per share for profit (loss) attributable to the equity holders of the parent company Basic earnings per share, 0.08 -0.17 -0.24 0.21 -0.35 EUR Diluted earnings per share, 0.08 -0.17 -0.24 0.21 -0.35 EUR Statement of comprehensive income EUR million Q3/ Q3/Q1-Q3/Q1-Q3/Q1-Q4/ 2009 2008 2009 2008 2008 Profit (loss) for the period 40 -87 -126 106 -180 Other comprehensive income for the period, after tax: Translation differences -16 93 50 -11 -206 Net investment hedge -17 -31 -37 -5 56 Cash flow hedges 18 -51 9 -51 -33 Share of other comprehensive -2 20 -10 12 1 income of associated companies Other comprehensive income -17 31 12 -55 -182 for the period, net of tax Total comprehensive income 23 -56 -114 51 -362 for the period Total comprehensive income attributable to: Equity holders of the parent 23 -55 -114 53 -361 company Minority interest - -1 - -2 -1 23 -56 -114 51 -362 Condensed consolidated balance sheet EUR million 30.09.2009 30.09.2008 31.12.2008 ASSETS Non-current assets Goodwill 933 933 933 Other intangible assets 390 431 403 Property, plant and 5,253 6,012 5,688 equipment Biological assets 1,126 1,140 1,133 Investments in associated 801 1,278 1,263 companies and joint ventures Deferred tax assets 244 272 258 Other non-current assets 644 452 697 9,391 10,518 10,375 Current assets Inventories 1,011 1,527 1,354 Trade and other receivables 1,460 1,838 1,710 Cash and cash equivalents 367 136 330 2,838 3,501 3,394 Assets classified as held for 327 - 12 sale Total assets 12,556 14,019 13,781 EQUITY AND LIABILITIES Equity attributable to equity holders of the parent company Share capital 890 890 890 Fair value and other -155 -42 -165 reserves Reserve for invested 1,145 1,145 1,145 non-restricted equity Retained earnings 3,908 4,527 4,236 5,788 6,520 6,106 Minority interest 14 14 14 Total equity 5,802 6,534 6,120 Non-current liabilities Deferred tax liabilities 590 717 658 Non-current interest-bearing 3,941 4,399 4,534 liabilities Other non-current 595 588 624 liabilities 5,126 5,704 5,816 Current liabilities Current interest-bearing 429 378 537 liabilities Trade and other payables 1,199 1,403 1,291 1,628 1,781 1,828 Liabilities related to assets - - 17 classified as held for sale Total liabilities 6,754 7,485 7,661 Total equity and liabilities 12,556 14,019 13,781 Condensed consolidated cash flow statement EUR Q1-Q3/ Q1-Q3/ Q1-Q4/ million 2009 2008 2008 Cash flow from operating activities Profit (loss) for the period -126 106 -180 Adjustments 735 786 1,232 Change in working capital 437 -329 -132 Cash generated from 1,046 563 920 operations Finance costs, net -135 -223 -216 Income taxes paid -22 -69 -76 Net cash generated from 889 271 628 operating activities Cash flow from investing activities Acquisitions and share - -7 -19 purchases Purchases of intangible and -191 -453 -558 tangible assets Asset sales and other 36 41 45 investing cash flow Net cash used in investing -155 -419 -532 activities Cash flow from financing activities Change in loans and other -489 352 305 financial items Share options exercised - 78 78 Dividends paid -208 -384 -384 Net cash used in financing -697 46 -1 activities Change in cash and cash 37 -102 95 equivalents Cash and cash equivalents at 330 237 237 the beginning of period Foreign exchange effect on - 1 -2 cash Change in cash and cash 37 -102 95 equivalents Cash and cash equivalents at 367 136 330 end of period Operating cash flow per 1.71 0.52 1.21 share, EUR Consolidated statement of changes in equity Attributable to equity holders of the parent company EUR million Share Translation Fair value capital differences and other reserves Balance at 1 January 2008 890 -158 193 Changes in equity for 2008 Share options exercised - - - Share-based compensation, net - - -18 of tax Dividend paid - - - Business combinations - - - Total comprehensive income - -7 -52 for the period Balance at 30 September 2008 890 -165 123 Balance at 1 January 2009 890 -295 130 Changes in equity for 2009 Share-based compensation, net - - 3 of tax Dividend paid - - - Business combinations - - - Other items - - - Total comprehensive income - -2 9 for the period Balance at 30 September 2009 890 -297 142 EUR million Reserve for Retained Total invested earnings non-restricted equity Balance at 1 January 2008 1,067 4,778 6,770 Changes in equity for 2008 Share options exercised 78 - 78 Share-based compensation, net - 21 3 of tax Dividend paid - -384 -384 Business combinations - - - Total comprehensive income - 112 53 for the period Balance at 30 September 2008 1,145 4,527 6,520 Balance at 1 January 2009 1,145 4,236 6,106 Changes in equity for 2009 Share-based compensation, net - - 3 of tax Dividend paid - -208 -208 Business combinations - - - Other items - 1 1 Total comprehensive income - -121 -114 for the period Balance at 30 September 2009 1,145 3,908 5,788 EUR million Minority Total interest equity Balance at 1 January 2008 13 6,783 Changes in equity for 2008 Share options exercised - 78 Share-based compensation, net - 3 of tax Dividend paid - -384 Business combinations 3 3 Total comprehensive income -2 51 for the period Balance at 30 September 2008 14 6,534 Balance at 1 January 2009 14 6,120 Changes in equity for 2009 Share-based compensation, net - 3 of tax Dividend paid - -208 Business combinations - - Other items - 1 Total comprehensive income - -114 for the period Balance at 30 September 2009 14 5,802 Quarterly information EUR million Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ 2009 2009 2009 2008 2008 2008 Sales 1,913 1,841 1,857 2,315 2,358 2,378 Other operating income 5 7 17 9 23 11 Costs and expenses -1,603 -1,627 -1,734 -2,227 -1,998 -2,074 Change in fair value of -13 10 11 -2 4 20 biological assets and wood harvested Share of results of -21 -22 -53 -16 35 21 associated companies and joint ventures Depreciation, amortisation -185 -201 -193 -365 -462 -199 and impairment charges Operating profit (loss) 96 8 -95 -286 -40 157 Gains on available-for-sale -1 - - - - 2 investments, net Exchange rate and fair value -3 3 -9 -14 - -1 gains and losses Interest and other finance -28 -37 -58 -60 -50 -43 costs, net Profit (loss) before tax 64 -26 -162 -360 -90 115 Income taxes -24 18 4 74 3 -25 Profit (loss) for the period 40 -8 -158 -286 -87 90 Attributable to: Equity holders of the parent 40 -8 -158 -287 -86 92 company Minority interest - - - 1 -1 -2 40 -8 -158 -286 -87 90 Basic earnings per share, 0.08 -0.02 -0.30 -0.56 -0.17 0.18 EUR Diluted earnings per share, 0.08 -0.02 -0.30 -0.56 -0.17 0.18 EUR Earnings per share, excluding 0.14 0.03 -0.27 -0.19 0.25 0.17 special items, EUR Average number of shares 519,954 519,954 519,954 519,979 519,999 517,622 basic (1,000) Average number of shares 521,036 519,954 519,954 519,979 519,999 516,791 diluted (1,000) Special items in operating -35 -23 -17 -240 -256 2 profit (loss) Operating profit (loss), 131 31 -78 -46 216 155 excl. special items % of sales 6.8 1.7 -4.2 -2.0 9.2 6.5 Special items before tax -35 -23 -17 -240 -250 2 Profit (loss) before tax, 99 -3 -145 -120 160 113 excl. special items % of sales 5.2 -0.2 -7.8 -5.2 6.8 4.8 Return on equity, excl. 5.0 0.8 neg. neg. 7.8 5.4 special items, % Return on capital employed, 4.9 1.3 neg. neg. 7.7 5.7 excl. special items, % EBITDA 334 238 128 178 378 313 % of sales 17.5 12.9 6.9 7.7 16.0 13.2 Share of results of associated companies and joint ventures Energy -24 -4 -4 -11 -8 -2 Pulp 4 -16 -47 -4 44 20 Forest and timber -1 1 1 -1 - - Paper - -1 -1 1 - - Other operations - -2 -2 -1 -1 3 Total -21 -22 -53 -16 35 21 EUR million Q1/ Q1-Q3/ Q1-Q3/ Q1-Q4 / 2008 2009 2008 2008 Sales 2,410 5,611 7,146 9,461 Other operating income 40 29 74 83 Costs and expenses -2,108 -4,964 -6,180 -8,407 Change in fair value of 28 8 52 50 biological assets and wood harvested Share of results of 22 -96 78 62 associated companies and joint ventures Depreciation, amortisation -199 -579 -860 -1,225 and impairment charges Operating profit (loss) 193 9 310 24 Gains on available-for-sale - -1 2 2 investments, net Exchange rate and fair value -10 -9 -11 -25 gains and losses Interest and other finance -49 -123 -142 -202 costs, net Profit (loss) before tax 134 -124 159 -201 Income taxes -31 -2 -53 21 Profit (loss) for the period 103 -126 106 -180 Attributable to: Equity holders of the parent 102 -126 108 -179 company Minority interest 1 - -2 -1 103 -126 106 -180 Basic earnings per share, 0.20 -0.24 0.21 -0.35 EUR Diluted earnings per share, 0.20 -0.24 0.21 -0.35 EUR Earnings per share, excluding 0.19 -0.10 0.61 0.42 special items, EUR Average number of shares 512,581 519,954 516,734 517,545 basic (1,000) Average number of shares 513,412 520,315 516,734 517,545 diluted (1,000) Special items in operating 5 -75 -249 -489 profit (loss) Operating profit (loss), 188 84 559 513 excl. special items % of sales 7.8 1.5 7.8 5.4 Special items before tax 5 -75 -243 -483 Profit (loss) before tax, 129 -49 402 282 excl. special items % of sales 5.4 -0.9 5.6 3.0 Return on equity, excl. 5.9 neg. 6.3 3.4 special items, % Return on capital employed, 6.5 0.9 6.6 4.6 excl. special items, % EBITDA 337 700 1,028 1,206 % of sales 14.0 12.5 14.4 12.7 Share of results of associated companies and joint ventures Energy -5 -32 -15 -26 Pulp 26 -59 90 86 Forest and timber 1 1 1 - Paper - -2 - 1 Other operations - -4 2 1 Total 22 -96 78 62 Deliveries Q3/ Q2/ Q1/ Q4/ Q3/ Q2/ Q1/ 2009 2009 2009 2008 2008 2008 2008 Electricity, 1,000 MWh 2,103 1,999 2,486 2,731 2,653 2,344 2,439 Pulp, 1,000 t 446 391 372 421 480 527 554 Sawn timber, 1,000 m3 355 366 363 421 510 628 573 Publication papers, 1,000 t 1,464 1,323 1,304 1,809 1,760 1,749 1,772 Fine and speciality papers, 872 813 724 784 863 923 981 1,000 t Paper deliveries total, 2,336 2,136 2,028 2,593 2,623 2,672 2,753 1,000 t Plywood, 1,000 m3 143 141 133 160 188 227 231 Q1-Q3/ Q1-Q3/ Q1-Q4/ 2009 2008 2008 Electricity, 1,000 MWh 6,588 7,436 10,167 Pulp, 1,000 t 1,209 1,561 1,982 Sawn timber, 1,000 m3 1,084 1,711 2,132 Publication papers, 1,000 t 4,091 5,281 7,090 Fine and speciality papers, 2,409 2,767 3,551 1,000 t Paper deliveries total, 6,500 8,048 10,641 1,000 t Plywood, 1,000 m3 417 646 806 Quarterly segment information EUR Q3/ Q2/ Q1/ Q4/ million 2009 2009 2009 2008 Sales Energy 108 100 136 141 Pulp 156 132 139 200 Forest and timber 295 309 385 419 Paper 1,454 1,388 1,367 1,750 Label 242 226 223 233 Plywood 73 77 75 102 Other operations 21 21 34 34 Internal sales -436 -412 -502 -564 Sales, total 1,913 1,841 1,857 2,315 EBITDA Energy 35 41 57 76 Pulp 8 -24 -55 9 Forest and timber 24 -15 -15 -52 Paper 274 247 187 189 Label 29 18 6 -1 Plywood -5 -5 -23 -5 Other operations -31 -24 -29 -38 EBITDA, total 334 238 128 178 Operating profit (loss) Energy 10 36 51 62 Pulp -9 -60 -122 -76 Forest and timber 6 -18 -18 -63 Paper 126 85 60 -126 Label 18 4 -3 -38 Plywood -10 -10 -29 -10 Other operations -45 -29 -34 -35 Operating profit (loss), 96 8 -95 -286 total % of sales 5.0 0.4 -5.1 -12.4 Special items Energy -17 - - - Pulp - - -29 -59 Forest and timber 1 -8 -10 -2 Paper -6 -10 23 -153 Label -2 -5 - -28 Plywood - - -1 - Other operations -11 - - 2 Special items, total -35 -23 -17 -240 Operating profit (loss) excl.special items Energy 27 36 51 62 Pulp -9 -60 -93 -17 Forest and timber 5 -10 -8 -61 Paper 132 95 37 27 Label 20 9 -3 -10 Plywood -10 -10 -28 -10 Other operations -34 -29 -34 -37 Operating profit (loss) excl. 131 31 -78 -46 special items, total % of sales 6.8 1.7 -4.2 -2.0 EUR million Q3/09 Q2/09 Q1/09 Q4/08 External sales Energy 24 24 49 57 Pulp 9 10 10 6 Forest and timber 145 150 152 199 Paper 1,409 1,355 1,327 1,701 Label 243 225 222 233 Plywood 69 73 72 94 Other operations 14 4 25 25 External sales, total 1,913 1,841 1,857 2,315 Internal sales Energy 84 76 87 84 Pulp 147 122 129 194 Forest and timber 150 159 233 220 Paper 45 33 40 49 Label -1 1 1 - Plywood 4 4 3 8 Other operations 7 17 9 9 Internal sales, total 436 412 502 564 EUR million Q3/ Q2/ Q1/ Q1-Q3/ 2008 2008 2008 2009 Sales Energy 129 103 105 344 Pulp 228 247 269 427 Forest and timber 475 518 508 989 Paper 1,761 1,727 1,773 4,209 Label 239 245 242 691 Plywood 121 150 157 225 Other operations 52 66 48 76 Internal sales -647 -678 -692 -1,350 Sales, total 2,358 2,378 2,410 5,611 EBITDA Energy 58 34 39 133 Pulp 38 35 57 -71 Forest and timber -4 4 4 -6 Paper 271 216 209 708 Label 9 15 11 53 Plywood 3 22 26 -33 Other operations 3 -13 -9 -84 EBITDA, total 378 313 337 700 Operating profit (loss) Energy 49 31 33 97 Pulp 60 38 67 -191 Forest and timber -38 17 25 -30 Paper -114 60 51 271 Label 1 8 3 19 Plywood -2 19 21 -49 Other operations 4 -16 -7 -108 Operating profit (loss), -40 157 193 9 total % of sales -1.7 6.6 8.0 0.2 Special items Energy - - - -17 Pulp - - - -29 Forest and timber -33 - -1 -17 Paper -227 - 1 7 Label - - - -7 Plywood - 3 - -1 Other operations 4 -1 5 -11 Special items, total -256 2 5 -75 Operating profit (loss) excl.special items Energy 49 31 33 114 Pulp 60 38 67 -162 Forest and timber -5 17 26 -13 Paper 113 60 50 264 Label 1 8 3 26 Plywood -2 16 21 -48 Other operations - -15 -12 -97 Operating profit (loss) excl. 216 155 188 84 special items, total % of sales 9.2 6.5 7.8 1.5 EUR million Q3/08 Q2/08 Q1/08 Q1-Q3/09 External sales Energy 45 20 15 97 Pulp 17 18 22 29 Forest and timber 197 240 233 447 Paper 1,699 1,657 1,704 4,091 Label 238 244 241 690 Plywood 111 139 147 214 Other operations 51 60 48 43 External sales, total 2,358 2,378 2,410 5,611 Internal sales Energy 84 83 90 247 Pulp 211 229 247 398 Forest and timber 278 278 275 542 Paper 62 70 69 118 Label 1 1 1 1 Plywood 10 11 10 11 Other operations 1 6 - 33 Internal sales, total 647 678 692 1,350 EUR million Q1-Q3/ Q1-Q4 / 2008 2008 Sales Energy 337 478 Pulp 744 944 Forest and timber 1,501 1,920 Paper 5,261 7,011 Label 726 959 Plywood 428 530 Other operations 166 200 Internal sales -2,017 -2,581 Sales, total 7,146 9,461 EBITDA Energy 131 207 Pulp 130 139 Forest and timber 4 -48 Paper 696 885 Label 35 34 Plywood 51 46 Other operations -19 -57 EBITDA, total 1,028 1,206 Operating profit (loss) Energy 113 175 Pulp 165 89 Forest and timber 4 -59 Paper -3 -129 Label 12 -26 Plywood 38 28 Other operations -19 -54 Operating profit (loss), 310 24 total % of sales 4.3 0.3 Special items Energy - - Pulp - -59 Forest and timber -34 -36 Paper -226 -379 Label - -28 Plywood 3 3 Other operations 8 10 Special items, total -249 -489 Operating profit (loss) excl.special items Energy 113 175 Pulp 165 148 Forest and timber 38 -23 Paper 223 250 Label 12 2 Plywood 35 25 Other operations -27 -64 Operating profit (loss) excl. 559 513 special items, total % of sales 7.8 5.4 EUR million Q1-Q3/08 Q1-Q4/08 External sales Energy 80 137 Pulp 57 63 Forest and timber 670 869 Paper 5,060 6,761 Label 723 956 Plywood 397 491 Other operations 159 184 External sales, total 7,146 9,461 Internal sales Energy 257 341 Pulp 687 881 Forest and timber 831 1,051 Paper 201 250 Label 3 3 Plywood 31 39 Other operations 7 16 Internal sales, total 2,017 2,581 Changes in property, plant and equipment EUR Q1-Q3/ Q1-Q3/ Q1-Q4/ million 2009 2008 2008 Book value at beginning of 5,688 6,179 6,179 period Capital expenditure 139 421 471 Decreases -14 -10 -24 Depreciation -530 -550 -748 Impairment charges -6 -31 -182 Impairment reversals 4 - - Translation difference and -28 3 -8 other changes Book value at end of period 5,253 6,012 5,688 Commitments and contingencies EUR million 30.09.2009 30.09.2008 31.12.2008 Own commitments Mortgages1) 760 89 787 On behalf of associated companies and joint ventures Guarantees for loans 8 10 10 On behalf of others Other guarantees 1 2 2 Other own commitments Leasing commitments for the 18 11 17 next 12 months Leasing commitments for 57 66 56 subsequent periods Other commitments 63 65 62 1) Mortgages relate mainly to giving mandatory security for borrowing from Finnish pension insurance companies. Capital commitments EUR million Completion Total cost By 31.12.2008 Rebuild of debarking plant, October 2010 30 1 Pietarsaari Waste water treatment plant, September 2010 19 - Blandin Energy saving TMP plant, January 2011 16 - Steyremühl Power plant rebuild, January 2011 12 - Schongau Fibre line improvement, December 2011 10 3 Blandin EUR Q1-Q3/ After million 2009 30.09.2009 Rebuild of debarking plant, 5 24 Pietarsaari Waste water treatment plant, - 19 Blandin Energy saving TMP plant, - 16 Steyremühl Power plant rebuild, - 12 Schongau Fibre line improvement, 2 5 Blandin Notional amounts of derivative financial instruments EUR million 30.09.2009 30.09.2008 31.12.2008 Currency derivatives Forward contracts 3,696 5,763 4,598 Options, bought 35 113 - Options, written 48 164 - Swaps 511 522 508 Interest rate derivatives Forward contracts 2,487 3,767 2,668 Swaps 2,947 2,205 2,833 Other derivatives Forward contracts 164 34 172 Options, bought 78 - - Options, written 78 - 78 Swaps 5 9 8 Related party (associated companies and joint ventures) transactions and balances EUR Q1-Q3/ Q1-Q3/ Q1-Q4/ million 2009 2008 2008 Sales to associated 81 100 138 companies Purchases from associated 384 427 592 companies Non-current receivables at 2 - - end of period Trade and other receivables 23 18 37 at end of period Trade and other payables at 30 31 27 end of period 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 Consolidated Financial Statements for 2008. 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: IAS 1 (Revised) Presentation of Financial Statements became effective 1 January 2009. The revised standard prohibits the presentation of items of income and expenses (that is, 'non-owner changes in equity') in the statement of changes in equity, requiring 'non-owner changes in equity' to be presented separately from owner changes in equity. Entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they will be required to present a restated balance sheet as at the beginning comparative period in addition to the current requirement to present balance sheets at the end of the current period and comparative period. Following the adoption of the revised standard the Group will present two separate statements (a separate income statement followed by a statement of comprehensive income). Calculation of key indicators Return on equity, %: (Profit before tax - income taxes)/Total equity (average)x 100 Return on capital employed, %: (Profit before tax + interest expenses and other financial expenses)/ (Total equity + interest-bearing liabilities (average))x 100 Earnings per share: Profit for the period attributable to equity holders of the parent company/ Adjusted average number of shares during the period excluding treasury shares Key exchange rates for the euro at end of period 30.09.2009 30.06.2009 31.03.2009 31.12.2008 USD 1.4643 1.4134 1.3308 1.3917 CAD 1.5709 1.6275 1.6685 1.6998 JPY 131.07 135.51 131.17 126.14 GBP 0.9093 0.8521 0.9308 0.9525 SEK 10.2320 10.8125 10.9400 10.8700 30.09.2008 30.06.2008 31.03.2008 USD 1.4303 1.5764 1.5812 CAD 1.4961 1.5942 1.6226 JPY 150.47 166.44 157.37 GBP 0.7903 0.7923 0.7958 SEK 9.7943 9.4703 9.3970 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 including the availability and cost of production inputs, 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 71-73 of the company's annual report 2008. UPM-Kymmene Corporation Pirkko Harrela Executive Vice President, Corporate Communications UPM, Corporate Communications Media Desk, tel. +358 40 588 3284 communications@upm-kymmene.com DISTRIBUTION NASDAQ OMX Helsinki Ltd Main media www.upm-kymmene.com