Interim report Q2/2014: UPM posts strong second quarter, solid progress in growth projects

UPM-Kymmene Corporation                   Interim Report                    5 August 2014 at 09.35 EET

Q2 2014 compared with Q2 2013

• Earnings per share excluding special items were EUR 0.26 (0.20), and reported EUR 0.25 (0.22)
• Operating profit excluding special items increased to EUR 186 million, 7.6% of sales (138 million, 5.5% of sales), due to the successful profit improvement programme
• EBITDA was EUR 298 million, 12.2% of sales (258 million, 10.2% of sales)
• The Lappeenranta renewable diesel refinery started its testing and commissioning process; the UPM Fray Bentos pulp mill received an increased production permit
• 94% of the targeted annualised EUR 200 million cost savings achieved in Q2 2014

Q1–Q2 2014 compared with Q1–Q2 2013

• Earnings per share excluding special items were EUR 0.53 (0.38), and reported EUR 0.61 (0.31)
• Operating profit excluding special items increased to EUR 382 million, 7.8% of sales (282 million, 5.6% of sales), due to the successful profit improvement programme
• EBITDA was EUR 611 million, 12.4% of sales (542 million, 10.9% of sales)
• Growth projects progressed in UPM Biorefining, UPM Paper Asia and UPM Raflatac
• Strong operating cash flow at EUR 479 million (187 million), net debt decreased to EUR 2,925 million

Jussi Pesonen, President and CEO comments on the result:   

“UPM has performed significantly better in the first half of 2014 than in the same period last year. Compared to 2013, our second quarter operating profit improved by 35%. The profit improvement programme, announced a year ago, is ahead of schedule and was evident in our results. With improved profitability, our cash flow was strong and the balance sheet was strengthened further which continues to support our capacity to pay a good dividend. Finally, I am pleased that all our growth projects made solid progress during the quarter.

Operating profit excluding special items increased to EUR 186 million (138 million). Operating cash flow continued to be strong at EUR 215 million (84 million), and net debt decreased to EUR 2,925 million (3,524 million).

UPM Paper ENA (Europe and North America), UPM Paper Asia and UPM Plywood all succeeded in their efforts to improve profitability. Most of the improvement stems from reduced variable and fixed costs. Furthermore, UPM Paper Asia and UPM Plywood benefited from higher delivery volumes, and UPM Plywood also profited from increased prices.

In UPM Energy, thanks to successful hedging and optimal utilisation of hydropower assets, profitability remained stable despite lower market prices.

UPM Biorefining and UPM Raflatac did not reach their full potential this quarter. In Pulp business, which makes up most of the UPM Biorefining results, profitability was negatively impacted by maintenance shut-downs and prolonged start-up at Kaukas pulp mill in addition to decreased hardwood pulp prices. UPM Raflatac’s results suffered from temporary operational issues.

As for our strategic growth projects, we are well on track.

Biofuels opens up a new horizon for our growth prospects. The Lappeenranta biorefinery, the first of its kind in the world, will start producing clean, technologically advanced renewable diesel. The construction has now been completed and we have started the testing and commissioning process. The sales agreement with NEOT (North European Oil Trade) was signed in June, and the refinery is expected to start commercial production during autumn. 

In Pulp, we made good progress in achieving the targeted 10% production capacity increase. The modernised fibre line in Pietarsaari came on stream. At the Kymi mill, construction work on the extension is on schedule. The production permitting process in Uruguay was completed and UPM Fray Bentos received a production permit for a further 100,000 tonnes in June, allowing an annual production of 1.3 million tonnes.

Our growth investments in emerging markets were also proceeding as planned. In UPM Changshu, China, the investment in woodfree speciality grades and labelling materials, as well as UPM Raflatac’s expansion to the self-adhesive labels factory on the same site, got off to a good start. In Nowa Wies, Poland, the preparations for UPM Raflatac’s expansion in filmic labelstock continued.

With these projects we are on our way to top-line growth and an additional EUR 200 million EBITDA in the coming two years,” said Pesonen.  

Outlook for 2014

Growth in the European economy is expected to be modest in 2014, but to improve over last year. In the US, growth is expected to remain stable at a moderate level, whereas solid growth is expected to continue in the developing economies.

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 over the past two years and stimulate European demand for wood products. The current hydrological situation in Finland is slightly above the long term average level, and the forward electricity prices in Finland for H2 2014 are lower than the realised market prices in H2 2013.

UPM’s business outlook is broadly stable.

In H2 2014, UPM’s performance is expected to be underpinned by similar or slightly better performance in UPM Paper ENA, UPM Paper Asia, UPM Raflatac, UPM Plywood and UPM Energy, when compared to H2 2013.

UPM Biorefining’s performance in H2 2014 compared to H2 2013 continues to be impacted by lower chemical pulp prices. Commercial production of renewable diesel at the Lappeenranta refinery is expected to start during autumn 2014, but the impact on UPM Biorefining’s earnings during H2 2014 is expected to be minor.

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 5 August 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 (The 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 Q2 - Interim Report January - June 2014

Direct telephone numbers:

BE: +32 2404 0642
DK: +45 3544 5581
FI: +358 9 8171 0461
FR: +33 1707 220 26
UK: +44 2076 6020 77
NO: +47 2350 02 13
SE: +46 850598261
US: +1 8777 889 023

International telephone numbers with a pin: 154747#

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

**

It should be noted that certain statements herein, which are not historical facts, including, without limitation, those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by “believes”, “expects”, “anticipates”, “foresees”, or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein including the availability and cost of production inputs, continued success of product development, acceptance of new products or services by the Group’s targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group’s patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group’s products and the pricing pressures thereto, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group’s principal geographic markets or fluctuations in exchange and interest rates. For more detailed information about risk factors, see pages 73–74 of the company’s annual report 2013.

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

UPM, Media Desk
9.00-16.00 EET
tel. +358 40 588 3284
media@upm.com

www.twitter.com/UPM_News
www.facebook.com/UPMGlobal

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