UPM Half Year Financial Report 2023: Strong downturn in markets pushed Q2 results to exceptional lows – transformation continues

Stock Exchange Release 25.7.2023 9:30 EEST

UPM-Kymmene Corporation        Stock Exchange Release (Half-Year Financial Report)        25 July 2023 at 09:30 EEST

UPM Half Year Financial Report 2023:
Strong downturn in markets pushed Q2 results to exceptional lows – transformation continues

Q2 2023 highlights                      

  • Sales were EUR 2,558 million (2,562 million in Q2 2022)
  • Comparable EBIT decreased by 71% to EUR 114 million, 4.5% of sales (387 million, 15.1%)
  • Delivery volumes were impacted by destocking in various product value chains
  • Pulp and energy prices decreased to cyclical bottom levels
  • Operating cash flow was EUR 459 million (-879 million), supported by cash inflow from energy hedges
  • UPM Paso de los Toros pulp mill in Uruguay ramping up production according to the plan
  • The OL3 nuclear power plant unit began regular commercial electricity production
  • Permanent closures of PM6 at UPM Schongau, Germany and PM4 at UPM Steyrermühl, Austria

H1 2023 highlights

  • Sales increased by 5% to EUR 5,345 million (5,069 million in H1 2022)
  • Comparable EBIT decreased by 29% to EUR 470 million (664 million), and was 8.8% (13.1%) of sales
  • Operating cash flow was EUR 1,173 million (-867 million), supported by cash inflow from energy hedges
  • Net debt decreased to EUR 2,557 million (2,688 million) and the net debt to EBITDA ratio was 1.07 (1.42)
  • Cash funds and unused committed credit facilities totalled EUR 6.4 billion at the end of Q2 2023
  • UPM finalised its full exit from Russia
  • UPM Leuna biochemicals refinery project schedule updated, start-up expected by the end of 2024 and investment estimate is EUR 1,180 million

Key figures

Sales, EURm        2,558        2,562        2,787        5,345        5,069        11,720
Comparable EBITDA, EURm        255        506        477        732        883        2,536
% of sales        10.0        19.7        17.1        13.7        17.4        21.6
Operating profit, EURm        108        335        318        426        518        1,974
Comparable EBIT, EURm        114        387        356        470        664        2,096
% of sales        4.5        15.1        12.8        8.8        13.1        17.9
Profit before tax, EURm        96        361        239        336        540        1,944
Comparable profit before tax, EURm        101        413        344        445        686        2,066
Profit for the period, EURm        77        292        183        261        431        1,556
Comparable profit for the period, EURm        77        329        281        358        561        1,679
Earnings per share (EPS), EUR        0.15        0.53        0.33        0.48        0.78        2.86
Comparable EPS, EUR        0.15        0.60        0.51        0.66        1.02        3.09
Return on equity (ROE), %        2.5        10.5        5.7        4.2        7.7        13.0
Comparable ROE, %        2.5        11.8        8.7        5.8        10.0        14.0
Return on capital employed (ROCE), %        3.0        10.0        6.0        4.5        7.8        12.8
Comparable ROCE, %        3.1        11.5        8.4        5.8        9.7        13.6
Operating cash flow, EURm        459        -879        714        1,173        -867        508
Operating cash flow per share, EUR        0.86        -1.65        1.34        2.20        -1.63        0.95
Equity per share at the end of period, EUR        21.24        20.57        23.42        21.24        20.57        23.44
Capital employed at the end of period, EURm        15,322        15,637        16,478        15,322        15,637        17,913
Net debt at the end of period, EURm        2,557        2,688        2,167        2,557        2,688        2,374
Net debt to EBITDA (last 12 months)        1.07        1.42        0.82        1.07        1.42        0.94
Personnel at the end of period        17,571        17,601        16,985        17,571        17,601        17,236

Jussi Pesonen, President and CEO, comments on the results:

“During the first half of the year the business environment was exceptional. Geopolitical uncertainty, low economic activity and high inflation were impacting consumers. At the same time, the extraordinary destocking in product value chains continued in our industry. Consequently, we saw a strong and rapid downturn in the markets. Deliveries of our products were well below estimated end-use demand, and global commodity prices, such as pulp and energy, fell from historic highs to cyclical bottom levels in six months.

Therefore, our Q2 result was disappointing. Our sales were EUR 2,558 million, at the level of the previous year. Comparable EBIT decreased to EUR 114 million (Q2 2022: EUR 387 million). On top of market challenges, the quarterly result was impacted by high maintenance activity in UPM Fibres, UPM Energy and UPM Biofuels, as well as the normal start-up costs of UPM Paso de los Toros. Operating cash flow was a solid EUR 459 million, supported by cash inflow from energy hedges. Our balance sheet remains very strong. Net debt decreased to EUR 2,557 million. Cash funds and unused committed credit facilities totalled EUR 6.4 billion at the end of the quarter.

In Q2, market shipments for most of our products were substantially below long-term averages impacted by continued destocking. In an environment of low volumes and decreasing prices, UPM Communication Papers and UPM Plywood performed well. UPM Raflatac and UPM Specialty Papers succeeded in unit margin management, but results were weak due to continuously low volumes. Volumes for UPM Fibres and UPM Energy increased, but prices declined significantly from comparison periods.

On the positive side, in Q2 our lower variable input costs contributed positively to the result. We have responded to challenging markets by continuing agile margin management and taking swift cost cutting measures. Permanent and temporary layoffs, flexible working hours and restructuring activities are being undertaken across UPM businesses. During the quarter, UPM Communication Papers permanently closed PM6 at UPM Schongau, Germany, and PM4 at UPM Steyrermühl, Austria. The business will continue adjusting its capacity to meet profitable customer demand in line with its strategy and long-term market outlook.

With these measures and our highly competitive production assets, UPM is well placed to benefit once volumes start to recover to more normal levels.

Our strategic milestone, UPM Paso de los Toros pulp mill shipped its first customer deliveries in May and the ramp-up has proceeded well, reaching 70% run-rate in July. We expect the mill to be EBITDA positive in Q3 even with the current bottom-of-the-cycle pulp prices. With a combination of competitive wood supply, scale, best available techniques and efficient logistics, the mill is expected to reach a highly competitive cash cost level of approximately USD 280 per delivered tonne of pulp once in full production and optimised. Most of our pulp capacity is now in Uruguay, where the plantation-based business platform is not only highly competitive, but also offers further growth opportunities in various biomaterials in the long term.

Another milestone, the OL3 nuclear power plant unit started regular commercial electricity production, increasing our CO2-free electricity output by nearly 50%. In the longer term, UPM’s competitive and agile energy business platform will open growth opportunities in synthetic fuels and materials.

Our biochemicals investment project in Leuna, Germany is progressing and obtained the operating permit in May. However, the project has suffered from the exceptionally challenging investment environment with scarcity of materials and contractors. Building a first-of-its-kind biorefinery under these circumstances and making the required adjustments has been demanding and caused rescheduling and delays in the project. The completion of the investment project is now expected to take place by the end of 2024 and the cost of the project is estimated at EUR 1,180 million. The project continues with full speed. The civil construction on the site will be completed in Q3 2023. The commissioning will be implemented in phases starting in Q4 2023.

We have full confidence in a profitable biochemicals business and the technologies used at UPM Leuna. Learnings from the first refinery will benefit future scaling up of the business. On the commercial side, we have successfully created collaboration and partnerships with distributors, customers and global brands. Interest for our renewable products replacing fossil materials has proven to be high.

Detailed commercial and basic engineering studies of the potential biofuels refinery in Rotterdam continue.

All in all, the first half of the year was challenging as the world has been adjusting to new economic and political realities. Nevertheless, I am confident that UPM businesses will improve significantly when the business cycle takes a more favourable turn. The positive long-term drivers and growth prospects for UPM are intact and exciting.”

Outlook for 2023

Full-year 2023 comparable EBIT is expected to decrease from 2022. UPM’s comparable EBIT in H2 2023 is expected to be on similar level or increase compared to H1 2023.

UPM’s delivery volumes are expected to increase in H2 2023 from H1 2023. Deliveries were unusually low during H1 2023, held back by significant destocking in the various product value chains. Destocking is expected to gradually phase out during H2 2023, enabling UPM’s deliveries to recover towards the underlying end-use demand. The production ramp-up of the UPM Paso de los Toros pulp mill and the OL3 nuclear power plant unit will add to UPM’s deliveries in H2 2023.

Chemical pulp and electricity market prices were historically high during H2 2022 and declined rapidly to estimated bottom-of-the-cycle levels during H1 2023. H2 2023 starts with low pulp and electricity prices, impacting these commodity price-driven businesses. In the other businesses UPM continues to manage margins.

Variable costs are expected to decrease in H2 2023 compared to H1 2023. In addition, UPM is implementing measures to reduce fixed and variable costs.

Invitation to UPM’s webcast and press conference on half year financial report 2023

A webcast and a conference call for analysts and investors in English begins at 13:15 EEST. The half year financial report will be presented by the President and CEO Jussi Pesonen and CFO Tapio Korpeinen. Participants can view the webcast online through this link, but participants who wish to ask questions from the management must register for the teleconference.

To ask questions, join the teleconference by registering here. After the registration you will be provided with phone numbers, a user ID and a conference ID to access the conference. To ask a question, press *5 on your telephone keypad to enter the queue.

The webcast will be available at www.upm.com for 12 months after the call.

Later in the afternoon, at 14:45 EEST, President and CEO Jussi Pesonen will present the half year financial report in a press conference held in Finnish both at the Group head office and online. Those wishing to attend this event, please contact the UPM media desk.


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. The main earnings sensitivities and the group’s cost structure are presented on pages 173–174 of the Annual Report 2022. Risks and opportunities are discussed on pages 32–33, and risks and risk management are presented on pages 132–137.


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

UPM, Media Relations
Mon-Fri 9:00-16:00 EEST
tel. +358 40 588 3284

We deliver renewable and responsible solutions and innovate for a future beyond fossils across six business areas: UPM Fibres, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Communication Papers and UPM Plywood. As the industry leader in responsibility, we are committed to the UN Business Ambition for 1.5°C and the science-based targets to mitigate climate change. We employ 17,200 people worldwide and our annual sales are approximately EUR 11,7 billion. Our shares are listed on Nasdaq Helsinki Ltd. UPM Biofore – Beyond fossils. www.upm.com

Follow UPM on Twitter | LinkedIn | Facebook | YouTube | Instagram | #UPM #biofore #beyondfossils