Interim report Q1/2014: UPM’s strong Q1 shows momentum towards EUR 400 million profit improvement

UPM-Kymmene Corporation   Interim report      29 April 2014 at 09:25 EET

Q1/2014 compared with Q1/2013:

• Earnings per share excluding special items were EUR 0.27 (0.18), and reported EUR 0.36 (0.09)
• Operating profit excluding special items improved to EUR 196 million, 7.9% of sales (144 million, 5.8% of sales)
• EBITDA was EUR 313 million, 12.6% of sales (284 million, 11.5% of sales)
• Growth initiatives progressed in UPM Biorefining, UPM Paper Asia and UPM Raflatac
• 78% of the targeted annualised EUR 200 million cost savings achieved in Q1 2014
• Operating cash flow was EUR 264 million and net debt decreased to EUR 2,777 million

Jussi Pesonen, President and CEO comments on the result:
 
“UPM had a strong first quarter both in terms of financial performance as well as progress in strategic initiatives.

Operating profit excluding special items increased to EUR 196 million (144 million). Consistent cost savings and improved efficiency in all of our businesses contributed to the good performance. Signs of recovering market fundamentals were also apparent in several business areas. Apart from UPM Biorefining, all businesses fared better compared to the previous quarter and last year.

We have now achieved EUR 156 million or 78% of the targeted annualised EUR 200 million cost savings. This is also visible in our result. With the current progress, we expect the full target to be reached by the end of this year.

The strong operating cash flow continued and since the beginning of the year we were again able to reduce our net debt by EUR 263 million bringing the net debt level down to EUR 2,777 million.

UPM Paper ENA (Europe and North America) has stepped up its performance steadily for a third quarter in a row which is evidence of the much improved competitiveness of our reshaped business platform. Costs are lower, decision making faster, flexibility has increased and customer focus improved. Also the decrease in the demand of graphic papers in Europe seems to have somewhat levelled off.

UPM Plywood continued on a trend of increasing profits. Having made a successful profitability turnaround with internal measures, the business is now starting to benefit from more favourable market conditions.

UPM Paper Asia, which is one of our growth businesses, continued good performance. In Q1 the development was driven primarily by decreased costs and positive delivery development especially in the labelling materials business.

UPM Raflatac is seeking further efficiency gains and growth through recent investment decisions and restructuring plans. The first quarter was slightly better compared to previous quarter and last year, but the business still aims to improve performance further.

In UPM Energy, the profitability was good. Energy benefitted from decreased costs, successful hedging and improved hydropower generation in Q1.

Also in UPM Biorefining the profitability remained on a good level. In pulp business, which makes the most of the Biorefining result, demand trend remained stable but profitability was negatively impacted by adverse currency development and Kaukas pulp mill maintenance shut down.

During the first quarter, we also made significant progress in our growth initiatives:

The Changshu investment in labelling materials was confirmed with improved capital efficiency and we announced a significant expansion in the UPM Raflatac self-adhesive label materials factory on the same site.

The announced investment in Kymi pulp mill in Finland provides significant capacity increase with competitive costs and low risk and contributes to the 10% capacity growth target of UPM’s pulp business.

With these growth projects, including the Lappeenranta renewable diesel plant starting this summer, we are targeting an additional EUR 200 million EBITDA in the coming three years.

Today all six UPM businesses show good drive to perform. We have made a significant improvement in our cost structures. We have strong market positions and competitive assets in all of our businesses. This gives us a strong basis for driving further the transformation of the company,” said Pesonen.

Outlook for 2014

Growth in the European economy is expected to remain low in 2014, but improve from last year. Growth in the US and in the developing economies is expected to continue to outperform Europe.

This environment is expected to be supportive for the global pulp and label materials demand, as well as paper demand in Asia. The slight improvement in the European economy is likely to moderate the negative demand development seen in the European graphic paper market in the past two years and stimulate European demand for wood products. The current hydrological situation in Finland is close to the long term average level, and the forward electricity prices in Finland for H1 2014 are lower than the realised market prices in H1 2013.

UPM’s business outlook for H1 2014 is broadly stable. In H1 2014, UPM’s performance is expected to be underpinned by stable overall outlook for UPM Energy, UPM Raflatac, UPM Paper Asia and UPM Plywood, as compared to H2 2013.

Profitability in UPM Paper ENA is expected to improve due to ongoing cost reduction measures. In H1 2014 compared to H2 2013, however, performance is negatively impacted by lower delivery volumes, including seasonal factors.

In UPM Biorefining, capacity additions in the global pulp market are expected to impact the pulp market balance as the year progresses.

Conference call and press conference

UPM's President and CEO Jussi Pesonen will present the results in a conference call and a webcast for analysts and investors, held in English language, on 29 April 2014 at 13:15 EET.

Later in the afternoon, Jussi Pesonen will present the results in a press conference held in Finnish language at the UPM Group Head Office (Biofore House) in Helsinki, Alvar Aallon katu 1, at 14:30 EET.

Conference call details:

The conference call can be participated in either by dialing a number in the list below or following the webcast online at www.upm.com or through this link .

Only participants who wish to ask questions in the conference call need to dial in. All participants can view the webcast presentation online. We recommend that participants start dialing in 5-10 minutes prior to ensure a timely start of the conference.

The presentation is available at www.upm.com for 12 months after the call.

Conference call title: UPM - UPM Q1 - Interim report January - March 2014

Direct telephone numbers:

BE: +32 2404 0642
DK: +45 3544 5586
FI: +358 9 8171 0465
FR: +33 1707 220 26
NO: +47 2350 02 13
SE: +46 8519 993 57
UK: +44 2076 6020 79
US: +1 8557161597

International telephone numbers with a pin:159259#

AU: +61 2 8073 0498
AT: +43 1 928 6161
CH: +41 44 580 65 22
DE: +49 69 2017 44 210
ES: +34 914 142 009
HK: +852 580 83239
IN: +91 22-3301 9422
IT: +39 02 3600 6663
JP: +81 3 5050 5409
NL: +31 20 716 80 20

UPM-Kymmene Corporation
Pirkko Harrela
Executive Vice President, Stakeholder Relations

UPM, Media Desk
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Through the renewing of the bio and forest industries, UPM is building a sustainable future across six business areas: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Paper Asia, UPM Paper Europe and North America and UPM Plywood. Our products are made of renewable raw materials and are recyclable. We serve our customers worldwide. The group employs around 21,000 people and its annual sales are approximately € 10 billion. UPM shares are listed on NASDAQ OMX Helsinki. UPM – The Biofore Company – www.upm.com