President and chief executive Juha Niemal said he could not see any sign of a significant turnaround this year.
There is no sign of a cyclical improvement, not even if the normal seasonal upturn takes place, he said.
Profits before extraordinary items fell 31% to 93m (Euro132m), on sales of 1.7bn, a fall of 6.6% on the same period last year.
Niemal said that the economic outlook for Europe was still uncertain, but paper demand has started to pick up slowly, albeit in what he termed as a sluggish market.
The companys 138m annual cost cutting programme announced in April has started to be implemented, focusing on raw material costs, logistics and the optimising of paper production.
Despite the challenging market, Niemal said the company continues to have a strong balance sheet and good cash to enable it to develop its operations.
The Changshu mill project to implement a new fine paper machine in China, which was halted due to the SARS outbreak, will now continue and Niemal said this should be only a few months later than had originally been anticipated, with completion now set for Summer 2005.
The company remains committed to its acquisition of US labelstock producer MACtac, despite a block by the US Department of Justice.
Niemal said as far as UPM-Kymmene was
concerned there was no case to be heard.
Story by Andy Scott
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