UPM Interim Report Q3/2018: Strong quarter sets a new benchmark for UPM's performance

Stock Exchange Release 24.10.2018 9:55 EET

UPM-Kymmene Corporation      Interim Report      24 October 2018 at 09:55 EET

 

UPM Interim Report Q3/2018: Strong quarter sets a new benchmark for UPM's performance

 

Q3 2018 highlights

  • Sales grew by 6% to EUR 2,650 million (2,493 million in Q3 2017).
  • Comparable EBIT increased by 20% to EUR 420 million (351 million).
  • Sales prices increased in all business areas, outweighing the impact of higher input costs.
  • Temporary operational issues in UPM Communication Papers and UPM Biorefining had a EUR 30 million negative impact.
  • Operating cash flow was strong at EUR 434 million (486 million).

 

Q1-Q3 2018 highlights

  • Comparable EBIT increased by 20% to EUR 1,109 million (926 million in Q1-Q3 2017).
  • Sales prices increased in all business areas, outweighing the impact of higher input costs and unfavourable currency exchange rates.
  • UPM paid a dividend of EUR 613 million.
  • Net debt decreased to EUR 4 million (623 million).
  • UPM initiated focused investments in Germany, Finland and China, to grow in the attractive release liner segments.

 

Key figures

Q3/2018

Q3/2017

Q2/2018

Q1-Q3/2018

Q1-Q3/2017

Q1-Q4/2017

Sales, EURm

2,650

2,493

2,589

7,752

7,439

10,010

Comparable EBITDA, EURm

487

425

425

1,362

1,180

1,631

  % of sales

18.4

17.1

16.4

17.6

15.9

16.3

Operating profit, EURm

417

379

349

1,151

960

1,259

Comparable EBIT, EURm

420

351

334

1,109

926

1,292

  % of sales

15.9

14.1

12.9

14.3

12.4

12.9

Profit before tax, EURm

401

357

337

1,108

914

1,186

  Comparable profit before tax, EURm

404

328

322

1,067

878

1,218

Profit for the period, EURm

328

286

269

905

730

974

Comparable profit for the period, EURm

330

267

258

875

707

1,004

Earnings per share (EPS), EUR

0.61

0.54

0.50

1.69

1.37

1.82

  Comparable EPS, EUR

0.61

0.50

0.48

1.64

1.32

1.88

Return on equity (ROE), %

14.5

13.9

12.1

13.5

11.7

11.5

Comparable ROE, %

14.6

13.0

11.6

13.0

11.4

11.9

Return on capital employed (ROCE), %

16.7

14.8

14.2

15.3

12.2

12.5

Comparable ROCE, %

16.8

13.6

13.6

14.8

11.7

12.8

Operating cash flow, EURm

434

486

329

970

1,151

1,558

Operating cash flow per share, EUR

0.81

0.91

0.62

1.82

2.16

2.92

Equity per share at end of period, EUR

17.21

15.61

16.37

17.21

15.61

16.24

Capital employed at the end of period, EURm

9,942

10,098

9,691

9,942

10,098

9,777

Net debt at the end of period, EURm

4

623

401

4

623

174

Net debt to EBITDA (last 12 m.)

0.00

0.41

0.23

0.00

0.41

0.11

Personnel at the end of period

19,076

19,335

19,836

19,076

19,335

19,111

 

Jussi Pesonen, President and CEO, comments on Q3 results:

 

"The third quarter was excellent and sets a new benchmark for our performance. Our customer demand continued to be healthy and we were able to increase sales prices in nearly all businesses. In five of our six business areas, the price increases were sufficient to cover the impact of higher input costs. Our business model continues to deliver results.

 

Our sales grew by 6% and comparable EBIT increased by 20% to EUR 420 million. Our comparable EBIT margin reached 15.9% illustrating well our current performance level compared to the first half of the year. Operating cash flow was strong and our balance sheet was practically debt-free at the end of the quarter.

 

The biggest improver was UPM Biorefining, which achieved record quarterly earnings. Pulp, Biofuels and Timber all achieved higher prices. Biofuels reached a new level of production after the turnaround shutdown in Q2. However, our pulp deliveries were held back by temporary production issues at the Fray Bentos mill, where thunderstorms caused four production shutdowns during the quarter.

 

UPM Communication Papers overcame higher input costs and lower deliveries with higher pricing and reported good, stable earnings. Unfortunate turbine damage and downtime at the Plattling mill caused extra costs, particularly as electricity prices were high. UPM Energy benefitted from the higher electricity prices, and increased its earnings even though dry weather limited our hydropower generation.

 

UPM Raflatac and UPM Plywood performed steadily. They were able to raise sales prices and offset the cost increases. Both also encountered some headwind from unfavourable currencies.

 

UPM Specialty Papers experienced a negative earnings development despite solid demand. The main reason for this was the continued increase in pulp costs. In label papers we were able to raise prices, but not sufficiently to fully compensate for the increase in pulp costs. In fine papers, prices decreased due to additional market supply in China.

 

Our transformative prospects provide us with unique and exciting opportunities for significant long-term earnings growth. In Uruguay, preparations for the potential new world-class pulp mill are proceeding. The rail tendering process is in its final stages and the port concession tendering has started. UPM has submitted the Environmental and Social Impact Study for the mill to the authorities. Engaging in active dialogue with local stakeholders has been an important part of the process. Next we expect tangible progress in infrastructure construction and labour protocols.

 

Preparations are also ongoing in our attractive biomolecular businesses. In UPM Biochemicals, we are continuing the basic engineering work for the potential first industrial-scale biochemical refinery in Germany. In UPM Biofuels, we completed the Environmental Impact Assessment for a possible Kotka Biorefinery in Finland and submitted it to the authorities for their final conclusions.

 

Overall, UPM is in great shape and ready to grasp the limitless opportunities that bioeconomy offers for value creation and business growth. We believe that growing sustainable businesses can offer solutions to the global challenges such as resource scarcity and climate change. During the quarter, our responsible business conduct as well as our efforts to deliver responsible solutions were recognized by United Nations Global Compact and Dow Jones Sustainability Indices. Our innovations create value and business opportunities for an era when the world is no longer dependent on fossils."

 

Outlook 2018

 

UPM's comparable EBIT is expected to continue growing in 2018 compared with 2017. H2 2018 comparable EBIT is expected to be significantly higher compared with H1 2018.

 

The fundamentals for UPM businesses in 2018 are favourable. Sales price increases in 2018 are expected to outweigh the increase in variable costs, compared with 2017.

 

Webcast and press conference

 

UPM's President and CEO Jussi Pesonen will present the financial results in a webcast and a conference call for analysts and investors, held in English language, today 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.

 

Webcast and conference call details:

 

The conference call can be participated in either by dialling 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 dialling in 5-10 minutes prior to the event in order to ensure a timely start of the webcast.

 

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

 

Conference call title: UPM Interim Report for January - September 2018

 

International telephone numbers with a pin code 88699264#

 

Australia Toll: +61 284058549

Austria Toll: +43 19287907

Belgium Toll: +32 24035814

Denmark Toll: +45 35445577

Finland Toll: +358 (0)9 817 103 10

France Toll: +33 170750711

Germany Toll: +49 6913803430

Hong Kong Toll: +852 30600225

Hungary Toll: +36 12355213

Ireland Toll: +353 14311252

Italy Toll: +39 0236013821

Japan Toll: +81 344556492

Netherlands Toll: +31 207095189

Norway Toll: +47 23500243

Singapore Toll: +65 64298349

Spain Toll: +34 935472900

Sweden Toll: +46 856642651

Switzerland Toll: +41 225809034

United Kingdom Toll: +44 3333000804

United States Toll: +1 6319131422

 

**

 

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 page 123 of the 2017 Annual Report. Risks and opportunities are discussed on pages 22-23 and risks and risk management are presented on pages 102-104 of the report.

 

**

 

UPM-Kymmene Corporation

Pirkko Harrela

Executive Vice President, Stakeholder Relations

 

UPM, Media Relations

Mon-Fri 9:00-16:00 EET

tel. +358 40 588 3284

media@upm.com

 

UPM

We deliver renewable and responsible solutions and innovate for a future beyond fossils across six business areas: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Communication Papers and UPM Plywood. We employ around 19,100 people worldwide and our annual sales are approximately EUR 10 billion. Our shares are listed on NASDAQ OMX Helsinki. UPM Biofore - Beyond fossils. www.upm.com

 

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UPM presents certain performance measures of performance, financial position and cash flows, which are alternative performance measures in accordance with the guidance issued by the European Securities and Markets Authority (ESMA). The definitions of alternative performance measures are presented in notes to the consolidated financial statements in UPM Annual Report.