UPM Q2: Paper demand continues on a good level, The labour dispute in Finland pressed down profitability

UPM’s Interim Report for January - June 2005

Key figures 4-6/2005 (4-6/2004)

- Earnings per share were EUR 0.05 (0.56)
- Operating profit was EUR 11 (87) million
- Before tax there was a loss of EUR 50 million (profit of EUR 79 million)
- Sales were EUR 2,253 (2,497) million
- The labour dispute in Finland had a negative impact of approximately EUR 175 million on second-quarter profit before tax. Paper deliveries were 13% down on the same quarter last year

UPM’s President and CEO Jussi Pesonen comments on the second quarter of 2005:

"UPM's cost efficiency continued to develop favourably despite unprofitable and fully unsatisfactory second-quarter results. However, the new labour agreement will create better opportunities to improve the long-term competitiveness of the Finnish units. On the other hand, we will have to consider how to reduce the country risk in paper grades where the production is based only in Finland."

"Continuous improvement of our profitability remains our most important objective. The cost savings programme completed at the end of last year, restructuring of wood products and North American operations as well as the target-driven labour negotiations have been significant measures in developing our cost-efficiency. The sale of Loparex and the acquisition of the remaining minority shareholding in Chudovo are steps to simplify the company structure."

"Compared to a record-breaking last year, demand for papers has remained on a good level during the first half of the year. Good demand has contributed to the fact that our order inflow recovered soon after labour settlement was reached. The inflow is now strong. In addition, customer deliveries returned to normal within two weeks. During the dispute, our customers were very supportive for which we are grateful."

"The improved balance of supply and demand has enabled price increases, particularly in North America and our export markets. In addition, the recent strengthening of the US dollar has supported the position of European paper manufacturers. In Europe, the price negotiations, postponed due to the labour dispute, are currently being resumed."

"Demand for papers during the second half of the year is predicted to be good, as during this period last year. Average paper prices are forecast to be higher. Paper stocks are currently low and the market is expected to be tight for magazine paper, newsprint and speciality papers. Converted products and plywood continue to be in good demand, but the markets for sawn timber will continue to be oversupplied," says Mr Pesonen.

For more information, please contact:
Mr Jussi Pesonen, President and CEO, UPM, tel. +358 204 15 0001
Mr Kari Toikka, Executive Vice President and CFO, UPM, tel. +358 204 15 0014


UPM
Corporate Communications
July 28, 2005

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News Conference and Conference Call Information

A news conference regarding the January-June Interim Report will be held today, July 28 2005, at Restaurant Bank (entrance: Unioninkatu 22, Helsinki) at 13:30 Finnish time (11:30 GMT, 06:30 EST). The briefing can be followed live on the internet at the address www.upm-kymmene.com. A recording of the briefing can be seen at this address for the following three months.

To participate in the UPM Conference Call, please dial +44 (0) 1452 542 300 at 17:00 (Finnish time) (15:00 GMT, 10:00 EST). A recording of the discussion can be heard until August 4, 2005 by calling: +44 (0) 1452 550 000, access code: 7325567#. The conference call title is UPM Interim Report January-June 2005 Conference Call.

In the United States and Canada, the Conference Call number is +1 866 220 1452. The recording can be heard at the following number +1 866 247 4222, access code: 7325567#.