Interim Review for January–June 2009
Weak market situation reduces Botnia’s net sales and result
• Sales EUR 585.0 million (EUR 810.4 million in January–June 2008)
• Operating profit excluding non-recurring items EUR -89.5 million (EUR 119.7 million)
Operating profit including non-recurring items EUR -164.5 million (EUR 119.7 million)
• Profit before taxes and excluding non-recurring items EUR -104.0 million (EUR 99.1 million)
• Investments EUR 19,7 million (EUR 43.2 million)
• Return on capital employed excluding non-recurring items -8.5% (12.5%)
Return on capital employed including non-recurring items -15.7% (12.5%)
• Equity ratio 61.0% (60.9%)
• Net gearing 42.7% (41.1%)
The figures and comparison data in the interim review comply with IFRS calculation principles. Figures from continuing operations are shown after interim figures.
Production curtailments at Finnish mills weighed down earnings
In the first half of the year, Botnia’s sales fell by 28% compared to the corresponding period last year, amounting to EUR 585.0 million (EUR 810.4 million January–June 2008). Pulp sales volume remained at the same level as last year, i.e. 1,560,000 tonnes.
Operating result excluding non-recurring items was EUR -89.5 million, falling clearly short of the first half of 2008 (EUR 119.7 million). The rapid decline of the market situation and the price of pulp had a considerable impact on the decline of net sales and the result. The result was also weighed down by production curtailment shutdowns at all Finnish mills.
The utilisation rate of the Uruguay mill has remained high and the result of the mill slightly positive.
Non-recurring items and fixed assets write-downs connected to the closure of the Kaskinen mill amounted to EUR -75 million in the first quarter.
Foreign currency-denominated market prices for softwood pulp were, on average, 33% lower in the first half of the year compared with the corresponding period last year. The average prices of hardwood pulp fell by 38%. The average exchange rate of the U.S. dollar strengthened by approximately 13% compared to the corresponding period last year.
In the second quarter of 2009, Botnia’s sales fell by almost 7% compared to the first quarter, amounting to EUR 282.5 million (EUR 302.8 million in January–March 2009). Botnia’s operating result remained weak in the second quarter at EUR -42.1 million (-47.4 in January–March 2009). Total net sales for the second quarter of 2009 remained at the same level as in the previous quarter. The currency-denominated market prices increased by 3% for softwood pulp and decreased by 5% for hardwood pulp. The U.S. dollar weakened by almost 5% compared with the first quarter.
Pulp prices on the rise at the end of the quarter
The closures of old pulp mills continued around the world, and several mills limited their production because of the market situation. In June, global pulp stocks had fallen almost to the normal level.
The price bottom for pulp was reached in February–March in China and in April in Europe. At the lowest point, European contract prices were USD 580 for softwood pulp and USD 480 for birch and eucalyptus pulp. Since then, prices have been on the increase with softwood pulp reaching USD 630 and eucalyptus/birch pulp USD 500 at the end of June. New, higher prices have been announced for July.
The near future for the pulp market is overshadowed by the low utilisation rates of European and North American paper mills, as well as support measures by the US and Canadian governments for their own pulp industries.
Production curtailments continued at Finnish mills
In the second quarter, production curtailment shutdowns continued at all Botnia mills in Finland. The shutdowns were partly production curtailments due to market conditions, and partly annual maintenance shutdowns.
At the Joutseno mill, major maintenance work increasing the mill’s energy independence to over 200% was carried out during the month-long shutdown. This means that the amount of renewable energy sold by the mill will increase by 20%.
Fray Bentos mill reaches production target and sets new monthly production record
The Fray Bentos mill reached its production target by producing a million tonnes of pulp between May 2008 and April 2009. In total, the mill has now produced over 1,300,000 tonnes of pulp, which equates to 57 shiploads from the Port of Nueva Palmira to Europe and Asia.
In May, the Fray Bentos mill set a new monthly production record with 99,534.1 tonnes of pulp. For the first time, average daily production was over the 3,200 tonne limit.
Outlook
Global pulp inventory levels are normalising, and the recent price increases suggest slight signs of positive profit development for the second half of the year. Paper mill utilisation rates are, however, expected to remain low in Europe. This means that no significant improvement is to be expected in the market situation as far as Europe is concerned.
Events after the review period
Metsäliitto Group has signed a letter of intent regarding the divestment of its Uruguay-based function to UPM-Kymmene Oyj. In the same connection, it was agreed that UPM will reduce its ownership in Metsä-Botnia to approximately 17%, with the majority transferring to Metsäliitto.
The Uruguay functions transaction included in the letter of intent include the majority shares of the Fray Bentos pulp mill and the Forestal Oriental company, which specialises in eucalyptus cultivation. Metsäliitto will also divest its direct ownership of 5.5% in Uruguay functions.
As a result of the arrangement, Metsäliitto Cooperative will own about 53% of Metsä-Botnia, and M-real around 30% and UPM around 17%. Once the arrangement has been carried out, Metsä-Botnia will become a subsidiary of Metsäliitto, and Metsä-Botnia's sales will be entirely consolidated with the Group figures.
In regard to their essential parts, the existing cooperation contracts will remain valid as unchanged, even after the arrangement has been carried out, and Metsä-Botnia will continue to act as a sales channel for the market pulp of both UPM and M-real.
Interim Review1-6/2009 (pdf)
