Interim Review for January-March 2009
• Sales EUR 302.8 million (EUR 397.9 million in January–March 2008)
• Operating profit excluding non-recurring items EUR -47.4 million (EUR 75.3 million)
Operating profit including non-recurring items EUR -122.4 million (EUR 75.3 million)
• Profit before taxes and excluding non-recurring items EUR -56.2 million (EUR 61.0 million).
• Investments EUR 10.2 million (EUR 23.3 million)
• Return on capital employed excluding non-recurring items -8.8% (15.9%)
Return on capital employed including non-recurring items -22.8% (15.9%)
• Equity ratio 59.9% (59.9%)
• Net gearing 42.4% (41.9%)
The figures and comparison data in the interim review comply with IFRS calculation principles.
Sales and profit fell
During the first quarter of the year, Botnia's sales fell by 24% compared to the corresponding period last year, amounting to EUR 302.8 million (EUR 397.9 million January–March 2008). With the Fray Bentos mill in full production, the pulp sales volume, however, increased by over 5%, amounting to 789,800 tonnes.
Operating profit excluding non-recurring items was EUR -47.4 million (EUR 75.3 million). The cost effects of non-recurring items and fixed assets writedowns connected to the closure of the Kaskinen mill were EUR 75 million, of which EUR 20 million have an impact on cash flow. The fall in sales and profit was due to the significant weakening of the market situation and the price of pulp. The result was also weakened by production curtailment shutdowns caused by declining demand.
The foreign currency-denominated market prices of softwood pulp were 33% lower on average compared to the first quarter of the previous year. The average prices of hardwood pulp fell by 34%. The average exchange rate of the U.S. dollar strengthened by approximately 13% compared to the corresponding period last year.
Operating profit weakened significantly compared to the last quarter of 2008 as well. The sales volume during the first quarter of 2009 was 10%, or 72,000 tonnes, higher than in the previous quarter. The currency-denominated market prices for softwood pulp fell by 16% and for hardwood pulp by 20%. The average exchange rate of the U.S. dollar was slightly stronger (1.1%) than in the previous quarter.
The situation in the pulp market continued to weaken
The demand for pulp continues to be weak due to the low utilisation rate of paper mills. Producers' inventory levels are high in spite of production curtailments at several mills and closures of older capacity. The price of pulp continued to decline during the first quarter of the year. In March, softwood pulp was selling at USD 580/tonne and birch/eucalyptus pulp at USD 490/tonne.
Production curtailments at Botnia mills in Finland
Due to the weak demand for pulp, Botnia has curtailed production at its mills in Finland. Statutory negotiations on potential temporary lay-offs during the production curtailments were commenced on 12 January 2009. During the first quarter of the year, continuous production curtailments have been implemented at all mills. A shutdown of three weeks was carried out in the Joutseno mill for the period 28 February–23 March 2009. Shutdowns will take place at the other mills during the year if the market situation so requires. The shutdowns will be covered by taking pre-planned training or accrued days off and annual holidays.
Kaskinen mill was closed
The statutory negotiations regarding the Kaskinen mill were completed on 12 January 2009. The negotiations did not find the economic prerequisites for continuing the operations of the mill, and the running down of production started on 11 March 2009. Draining and cleaning of the process equipment and tanks continued until the end of March. Wood handling, operations of the water treatment and effluent treatment plants and energy production will continue according to the needs of the M-real BCTMP mill located in the same integrate.
The statutory negotiations at Kaskinen affected 223 people. Permanent employment at Botnia's other mills and competence centres and within the integrate was secured for 56 people. Botnia is also participating in the joint project of the region's towns to find alternative employment opportunities in the region.
Environmental monitoring results for the first year of operations at Fray Bentos were published
The International Finance Corporation (IFC) of the World Bank Group published on 19 March 2009 the results of the environmental monitoring for the first year of operations at the Fray Bentos mill. According to the report by the independent consultant EcoMetrix, the mill’s operations comply with the strict environmental standards stated in the Environmental Impact Assessment (EIA) and the Cumulative Impact Study (CIS). The mill’s emissions and effluents also remain below the levels set by the Uruguayan environmental authorities and defined by the IFC and the EU. The report also indicates that the mill has not had an impact on the quality of water in Río Uruguay or the air quality in the region.
There was an explosion on the transfer line for weak malodorous gases at the Fray Bentos mill on 27 February 2009 just as the mill was being restarted after a maintenance shutdown. The explosion damaged the odorous gas pipeline in the mill and, as a result, the planned start-up of the mill was delayed for two days. The mill was started on 1 March 2009, and production has been at normal capacity. The explosion did not cause any personal injuries or have any environmental impact.
Special focus on occupational safety
A serious accident causing the death of an employee occurred at Botnia's Svir Timber sawmill in Russia on 28 February 2009. The investigation of the incident has been completed and corrective measures were implemented immediately.
Occupational safety at Botnia mills has been at the average level in the industry in recent years. However, this is not a sufficient level. According to Botnia's vision, the company strives to be the best supplier in the world, including in terms of occupational safety. Botnia has an ambitious goal of reducing the number of work-related accidents to zero by the year 2012.
The Rauma mill was selected as the safest Botnia unit in 2008. The most significant factor contributing to this was the accident frequency, or the number of accidents sustained by the mill's personnel in proportion to working hours. Good results have also been achieved at the Kemi and Joutseno mills, where no work-related accidents were reported in the first quarter.
Short-term outlook is extremely challenging
The outlook for the second quarter of the year is extremely challenging. It is believed that the decline in the price of pulp will slow down or come to a halt, but producers' inventories are still very high. With the closures of old mills, pulp capacity has been eliminated from the market.
At the end of March, VCP started the new Tres Lagoas eucalyptus pulp mill. This will increase the supply of eucalyptus pulp in the market during the second quarter of the year.
Interim Review for January-March 2009 (pdf)
