Interim report for the Finnforest Corporation 1-3/2003

Finnforest Corporation BULLETIN Free for publication at 12.00 on 28 April 2003. INTERIM REPORT FOR THE FINNFOREST CORPORATION 1-3/2003 (unaudited) · Turnover E446.1 million (426.4) · Operating profit E8.4 million (9.8) · Profit before extraordinary items E0.2 million (1.1) · Return on capital employed 3.8 % (4.3) · Equity ratio 38.8 % (38.7) and gearing ratio 108 % (106) Capital loans included in interest-bearing debt · Equity ratio 29.2 % (29.5) and gearing ratio 177 % (170) · First-quarter result slightly positive Finnforest's profit before extraordinary items was E0.2 million in January-March, 0.9 less than in the corresponding period of 2002; the result was an improvement on the previous quarter. Seasonal fluctuations had a subduing affect on performance in January and February, but March was a good month. The building industry, a key Finnforest customer, was in severe difficulties, especially in Germany. The DIY segment experienced modest growth, but only in France and the UK. A weakening dollar is tightening competition. The first quarter result was also affected by an E0.9- million reservation to restructure the Moelven Building Group. The Solid Wood Division improved its result compared with the corresponding period of 2002. This was mainly due to a small increase in sawn timber prices and increased delivery volumes. Also Moelven, which handles operations in Scandinavia, improved its performance. Kerto LVL was the best-performing product. Turnover, result and financing position Finnforest Corporation's turnover grew on the corresponding period of 2002 and was E446.1 million (426.4). Other operating income was E2.4 million (5.4) in January-March. The operating profit fell slightly to E8.4 million (9.8). The profit before extraordinary items likewise fell and was E0.2 million (1.1). The Solid Wood Division's operating profit in January-March was E3.0 million (-0.1), Engineered Wood's E1.6 million (2.2), the Market Areas Division's E2.3 million (5.6) and Moelven's E3.1 million (2.2). The return on capital employed weakened on the corresponding period of the previous year and was 3.8 per cent (4.3). The Corporation's liquid assets and investment totalled E15.8 million (28.7) at the end of the period under review. The equity ratio at the end of the period under review was 38.8% (38.7) and the gearing ratio 108 (106), capital loans included in shareholders' equity. If capital loans are included in liabilities, the equity ratio was 29.2% (29.5) and the gearing ratio 177% (170). Key figure chart [REMOVED GRAPHICS] Personnel Finnforest employed 7,733 (7,542) people at the end of March, 2,558 (2,509) in Finland, 1,805 (1,838) in Norway, 1,201 (1,185) in Sweden and 951 (774) in the UK. 1,218 (1,236) were employed in other countries. Divisions: developments and market situation Engineered Wood Division - Kerto-LVL performing well Turnover E75.4 million (63.6) Operating profit E1.6 million (2.2) Return on capital employed 2.5% (4.0) The birch plywood market was experiencing excess supply and demand was down especially in Germany, which was reflected in pressure to drop wholesale prices. The industrial end-use segments performed as expected. Production and sales volumes rose, prices declined by 5% on the corresponding period of 2002. In spite of the weakening dollar, imports of North American softwood plywood have not significantly increased in Europe. Production and sales volumes rose, prices declined by 2% on the corresponding period of 2002. Kerto LVL sales rose on the corresponding period of last year. The Lohja and Punkaharju factories were both running at full capacity. Market situations were good in Finland and Scandinavia; UK sales were likewise good. The French and German market situations were sluggish. Sales developed well in the USA and elsewhere outside Europe, but a weak dollar strained profits. European prices developed as expected. Glulam sales volumes grew, due mainly to exports to Japan and some larger projects. Production increased clearly on the previous year, the price level was tight. Demand for heat-treated wood increased as expected and prices developed positively. The office building market for wood-based partition wall systems likewise developed favourably. Demand for impregnated sawn timber was good and production and delivery volumes grew markedly on the previous year. The market for electricity and telecoms poles remained stable; deliveries fell in Finland, but the UK unit's delivery and production volumes clearly increased. The price levels for impregnated sawn timber and utility poles remained low. Sales and production volumes of particleboard products fell and prices developed weakly. Solid Wood Division improves result clearly Turnover E124.4 million (108.7) Operating profit E3.0 million (-0.1) Return on capital employed 4.0% (0.3) Finnforest's sawmilling segment, Solid Wood, improved its operating profit on the corresponding period of 2002. This was mainly due to a small increase in prices and a clear rise in deliveries. Supply of and demand for northern softwood timber is in equilibrium and inventories are small. Difficult winter weather in early 2003 decreased supplies of especially Russian softwood timber in Europe. Demand is normal in the main markets, apart from Germany. A stronger euro has hampered exports to North America and led to increased supply in the European building timber market. The total production volume was 620,000 m3 (518,900), 357,000 m3 of which was spruce and 245,000 m3 pine. Total deliveries amounted to 548,000 m3 (505,000). Sawn timber prices were about 4% higher than during the corresponding period of 2002. Moelven profits improve Turnover E151.7 million (143.0) Operating profit E3.1 million (2.2) Return on capital employed 5.3% (4.0) Moelven Industrier ASA published its own interim report on 28 April. It can be accessed at www.moelven.com Moelven Timber Group Moelven's most successful unit was its Timber Division, which turned out an excellent result. The planing and delivery operations were less profitable. Building activity was sluggish in Scandinavia, which had a negative effect on demand for planed products. Export demand for glulam products remains weak and Moelven is taking measures to adjust capacity to demand. The Timber Group's aggregate production volume of sawn timber and glulam was 410,000 m3 in the period under review. Spruce timber prices were unchanged and pine timber prices rose slightly. Moelven Building Group Office and commercial premises building remains sluggish in Scandinavia, which affected demand for modular buildings and system interior products. Supplies to Statoil's Snøhvit gas field project had a positive effect on sales and profits. Market Areas Division - Finnforest France exceeds expectations Turnover E139.8 million (146.6) Operating profit E2.3 million (5.6) Return on capital employed 5.2% (10.1) Market Area West The early part of the year saw the building industry in a slump in Europe and in the east coast region of the USA where we operate. A weakening dollar hampered exports to North America and increased competition in Europe, leading to pressure to drop prices. The war in Iraq and related low share prices had a negative effect on consumer demand. Even though they were operating under fairly difficult circumstances and with their sales volumes falling, Finnforest UK and Finnforest France achieved their result targets. Investment in the Building systems product range was behind the good result in the UK. A programme to increase operational efficiency in France was continued and achieved even better results than had been expected. The German construction sector was still in recession and Finnforest Deutschland recorded a loss. A development programme to increase profitability at the German company continued as planned, but due to the difficult operating circumstances the results are not yet visible. Market Area East Wholesale sales of panel products by the Hungarian, Czech and Slovakian units remained profitable and turnovers remained on the previous year's levels. These units are trying to increase variety by broadening their product ranges. The Asia-Pacific unit's first quarter was excellent, but the war in Iraq is making buyers less confident. The main products are spruce timber and processed articles manufactured by Solid Wood. Japanese sawn timber and glulam sales almost matched expectations, although the weakening dollar is increasing competition from North American producers. Use of wood raw material Finnforest's production used 2,550,000 cubic metres of logs in the period under review, Moelven accounted for 850,000 of this. 1,468,000 cu. m. was spruce, 982,000 pine and 100,000 birch. Investment in fixed assets The Corporation's gross investment totalled E11 million (12) in the period under review. Annual General Meeting The Annual General Meeting held on 12 March 2003 elected the following to serve on the Board of Directors of the Finnforest Corporation: Heikki Asunmaa, Kari Haavisto, Tapani Kantola, Curt Lindbom, Markku Melkko, Antti Oksanen (Chairman), Arimo Uusitalo (Deputy Chairman). The independent firm of public accountants PricewaterhouseCoopers Oy continues as auditors. Göran Lindell is the responsible auditor. It was decided to hold an Extraordinary General Meeting on 17 April 2003. Events following the period under review Finnforest Corporation signed a E240 million credit facility agreement on 2 April 2003. The money will be used in the refinancing of the $130 million syndicated loan taken in 1998. The term of the new loan is 5 years and its principal arrangers are Commerzbank Aktiengesellschaft, Danske Bank A/S and the Copenhagen Branch of Landesbank Schleswig- Holstein. A total of 18 banks are party to the agreement. The Extraordinary General Meeting held on 17 April 2003 elected the following to serve on the Board of Directors of the Finnforest Corporation until the next AGM: Heikki Asunmaa, Martin Lillandt, Tapani Kantola, Curt Lindbom, Hannu Anttila, Antti Oksanen (Chairman), Arimo Uusitalo (Deputy Chairman). Prospects for the near future As an increasing sense of uncertainty is affecting the markets, overall economic activity has slowed - apart from the UK. The building sector is in recession, the renovation segment is the only one displaying even weak signs of possible growth. Positive developments are expected from the French and UK DIY segments, although consumer demand is waning in these countries too. The war in Iraq is destabilising consumer demand in the main market areas. Due to seasonal fluctuations, the second quarter result should exceed the first; however, numerous uncertainties make accurate forecasts of second-quarter developments difficult. Board Of Directors Espoo, 28.4.2003 Additional information: CEO Ari Martonen, Finnforest Corporation, tel. +358 1046 94870, GSM +358 50 2406 Financial Director Ilkka Silvanto, Finnforest Corporation, tel. +358 1046 94576, GSM +358 50 5989 553 Communications Director Jukka-Pekka Vuori, Finnforest Corporation, tel. +358 1046 94865, GSM +358 50 5987 064 APPENDICES Income statement and balance sheet Key figure charts Interim reports and company info available at www.finnforest.fi and www.finnforest.com and www.moelven.com ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2003/04/28/20030428BIT00370/wkr0001.doc The full report http://www.waymaker.net/bitonline/2003/04/28/20030428BIT00370/wkr0002.pdf The full report