"The strengthening of the euro has intensified competition in Europe, and the profitability of the US dollar- and the British pound-denominated exports has weakened," UPM-Kymmene chief executive Juha Niemela said.

Niemela said the result was "well below the company's targets", adding that persistent low paper prices were also to blame.

As a consequence, sales in the first six months of the year were down 5.0 percent, at 4.96 billion euros, compared with the same period in 2002, while earnings per share excluding non-recurring items had more than halved, to 0.25 euros.

On the Helsinki stock exchange, UPM-Kymmene's share price dropped 0.6 percent following the news, selling at 14.71 euros.

"The second-quarter result was slightly better than expected, but the situation remains challenging, and no clear improvements are expected," Henri Parkkinen, analyst at Opstock Securities, told AFX News, AFP's financial news subsidiary.

UPM-Kymmene said it did not foresee a significant market turnaround this year, and expected no improvement in profit in the third quarter either.

Due to the slack demand, UPM-Kymmene had cut the operating rate at its paper mills to 87 percent in the first half of 2003.

"Massive downtime has been taken to adjust production to demand," Niemelae conceded.

The group said that it now expected paper prices to remain relatively flat in Europe and only slowly edging upwards in the United States during the rest of the year.

To boost future earnings the group said it would lay off some 1,200 of its 37,000 workers worldwide before 2005.

"The job cuts will affect every one of our units, in Finland and abroad," said Niemelae.

It was "more likely than not that it will include further closings of paper lines", Niemelae said, adding however that "it is not very likely that we will close whole mills".

Stora Enso, Finland's largest paper and forestry group, is due to publish its second-quarter results on July 24.

TERRA.WIRE