1) The 2018 comparative figures have been restated due to accounting policy change of forest renewal costs.
Jussi Pesonen, President and CEO, comments on Q3 2019 results:
“Q3 was a milestone quarter in our strategic transformation. The biggest news during the quarter was the decision to proceed with the new, highly competitive pulp mill investment in Uruguay, which represents a step change in the scale of our pulp business, as well as in UPM’s future earnings. We are in a unique position as we proceed with the execution and preparation of major future growth projects. At the same time, we are continuously taking action to ensure our competitiveness.
UPM’s good business performance continued during Q3. The decelerating economy, especially in Europe, is impacting our product markets, and sales prices decreased in line with our expectations. We succeeded in maintaining margins at the same level as in the first half of the year.
In comparison to the corresponding quarter last year, which saw record-high pulp prices, our sales decreased by 6% and comparable EBIT by 19% to EUR 342 million. Compared to the previous quarter of the present year, earnings stayed at the same level. Operating cash flow was very strong, totalling EUR 500 million. Consistently strong cash flow and a debt-free balance sheet provide a solid foundation for our growth investments.
In UPM Biorefining, earnings were affected by lower pulp prices as expected. Operationally, however, the quarter was strong. Both UPM Pulp and UPM Biofuels achieved record production, and UPM Biofuels reported its best quarterly result ever.
Once again, UPM Communication Papers achieved a solid result. Through continuous fixed and variable cost management, we succeeded in countering the headwind from the market demand and prices. To ensure competitiveness going forward, UPM closed PM10 at UPM Plattling, Germany, in July, and in September we announced plans to close PM2 at UPM Rauma, Finland, and sell UPM Chapelle newsprint mill in Grand-Couronne, France.
UPM Specialty Papers succeeded in making a profitability turnaround. The business benefited from lower pulp costs and strong customer demand, especially in Asia. Our internal cost-management measures also had visible results.
UPM Raflatac’s margins are recovering gradually, due to disciplined management efforts. To stay on this positive track, various margin, product-mix and cost-management initiatives will be continued.
UPM Energy reported another excellent quarter thanks to higher market prices and skilful optimisation of hydropower generation in the extremely dry hydrological conditions of Finland.
UPM Plywood faced strengthening headwind in the markets. Adjusting to slowing demand led to labour co-operation negotiations and temporary layoffs in Finland. On a positive note, production commenced at the mill expansion in UPM Chudovo, Russia, which is further improving competitiveness.
After careful preparation, we made the decision to build a new, world-class pulp mill in central Uruguay. We are swiftly proceeding from preparation to planning and execution. Construction permitting and preliminary works on the mill site and in the Montevideo port have begun. The state of Uruguay has commenced construction of the railway, and suppliers are recruiting workforces. The USD 2.7 billion investment in a highly competitive 2.1 million tonne eucalyptus pulp mill will raise UPM’s pulp capacity by more than 50% and significantly contribute to future earnings.
Our other transformative projects are progressing, too. Release-liner expansions in UPM Nordland and UPM Changshu will be completed by the end of the year, and technical and commercial studies into biochemicals and biofuels are ongoing in Germany and Finland. In these businesses, we are driving the change towards a world beyond fossils. They represent exciting business opportunities for UPM in vast new markets.
UPM firmly believes in growing sustainable businesses that offer solutions to global challenges. During the quarter this commitment was recognised with top ratings by the Dow Jones Sustainability Indices, United Nations Global Compact LEAD and MSCI ESG Ratings. I am very proud of these recognitions from respected institutions.”
Outlook for 2019
The global economic growth is estimated to continue in 2019, albeit at a slower pace than in 2018. There are significant uncertainties related to global economic growth, including global trade tensions. Growth has slowed down in Europe, particularly in Germany. These issues may have an impact on the global economic growth and on UPM’s product and raw material markets.
UPM reached record earnings in 2018. UPM’s business performance is expected to be at a good level in 2019.
In 2019, demand growth has continued for most UPM businesses, albeit at a modest pace. Demand decline has continued for UPM Communication Papers.
Fair value increases of forest assets are not expected to contribute materially to comparable EBIT in 2019.
In Q4 2019, the average pulp price for UPM businesses is expected to be lower than in Q3 2019. UPM Biorefining is affected by the scheduled maintenance shutdown at the UPM Fray Bentos pulp mill. UPM Communication Papers is positively impacted by the annual energy related refunds.