UPM RESULTS Q3 214 Jussi Pesonen President and CEO 28 October 214
Successful profit improvement programme prompted strong Q3 214 results Q3 214 vs. Q3 213: Sales EUR 2,415m -2% EBITDA EUR 346m +35m Operating profit ( * EUR 235m +41m Profit before tax ( * EUR 213m +4m EPS ( * EUR.32 +.6 Q1-Q3 214 vs. Q1-Q3 213: Operating profit ( * EUR 617m +141m Operating cash flow EUR 779m +36m Net debt EUR 2,726m -575m Gearing 36% -9pp Net debt / EBITDA 2.2x -.6x 2 UPM ( * excluding special items
Profit improvement programme achieved its target in Q3 214 25 2 12% achieved in Q3/14 15 1 5 EUR 2m of annualised fixed and variable cost savings Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 3 UPM
UPM is preparing a new profit improvement plan The EUR 2m profit improvement programme was completed ahead of schedule and improved UPM s profitability significantly In the process, UPM has identified further improvement potential Continuously weak European economy is not promising tailwind UPM is preparing a new plan including fixed and variable cost savings. We are analyzing the means and tools at our disposal and will communicate a new profit improvement target in the next few weeks 4 UPM
EBITDA in Q1-Q3 214 vs. Q1-Q3 213 Significant cost savings achieved Currencies, pulp and paper prices had a negative impact 1,2 1, 8 6 853 11.4% Prices, currencies Deliveries Fixed costs Variable costs Elimin. 957 13.% Significant improvement in UPM Paper ENA and UPM Plywood, UPM Biorefining lower due to pulp price, maintenance 1,2 1, 8 6 853 11.4% Biorefining Energy Raflatac Paper Asia Paper ENA Plywood Other operations and eliminations 957 13.% 4 4 2 2 EBITDA 9M/13 EBITDA 9M/14 EBITDA 9M/13 EBITDA 9M/14 5 UPM
Operating profit * ) by business area EURm 1 UPM Biorefining % of sales 2 EURm 1 UPM Energy % of sales 5 EURm 5 UPM Raflatac % of sales 1 8 16 8 4 4 8 6 12 6 3 3 6 4 8 4 2 2 4 2 4 2 1 1 2 Q3 12 Q4Q1Q2Q3Q4Q1Q2Q3 12 13 13 13 13 14 14 14 Q3 12 Q4Q1Q2Q3Q4Q1Q2Q3 12 13 13 13 13 14 14 14 Q3Q4Q1Q2Q3Q4Q1Q2Q3 12 12 13 13 13 13 14 14 14 EURm 5 UPM Paper Asia EURm UPM Paper ENA % of sales EURm UPM Plywood % of sales % of sales 12,5 75 6 2 12 4 1 5 4 15 9 3 7,5 25 2 1 6 2 5 5 3 1 2,5-25 -2 Q3Q4Q1Q2Q3Q4Q1Q2Q3 12 12 13 13 13 13 14 14 14 6 UPM * ) excluding special items -5 Q3 12 Q4Q1Q2Q3Q4Q1Q2Q3 12 13 13 13 13 14 14 14-4 -5 Q3 12 Q4Q1Q2Q3Q4Q1Q2Q3 12 13 13 13 13 14 14 14-3
Q18 Q38 Q19 Q39 Q11 Q31 Q111 Q311 Q112 Q312 Q113 Q313 Q114 Q314 Consistently strong cash flow 1 4 1 2 1 8 6 4 Cash flow, trailing 12 months Cash flow after investing activities Operating cash flow Q3 214 operating cash flow was EUR 3m (286m) Last 12 months operating cash flow was EUR 1,41m (834m) 2 7 UPM
Continuously strengthening balance sheet Net debt, 5, Net debt / EBITDA (trailing 12 months) 4.5 Net debt, Gearing % 5, 9 4,5 4, Net debt / EBITDA 4. 3.5 4,5 4, Gearing 8 7 3,5 3. 3,5 6 3, 2.5 3, 5 2,5 2.2 2. 2,5 4 36 2, Net debt 1.5 2, Net debt 3 1,5 1. 1,5 2 28 29 21 211 212 213 214 28 29 21 211 212 213 214 8 UPM Liquidity was EUR 1.7bn at the end of Q3 214 Repayments total EUR.5bn in 214
UPM business outlook is broadly stable ( * In H2 214, 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 213. UPM Biorefining performance in H2 214 compared to H2 213 continues to be impacted by lower chemical pulp prices. Commercial production of renewable diesel at the Lappeenranta biorefinery is expected to start in Q4 214. Q4 214 is expected to be impacted by seasonally higher fixed costs, the year-end stoppages in the company s paper mills as well as the maintenance shutdown of the Fray Bentos pulp mill, when compared to Q3 214. 9 UPM * ) See complete wording of the "Outlook" in the Q3 214 interim report
Growth projects Lappeenranta biorefinery nearing its start Sales agreement with NEOT signed in June Construction of the biorefinery was completed in July Commissioning process has proceeded well, and the commercial production of advanced renewable diesel is expected to start during Q4 214 Earnings impact is expected to be minor during H2 214 1 UPM
Growth projects 1% expansion in pulp production capacity Pietarsaari pulp mill modernisation and 7,t capacity expansion completed in June Fray Bentos pulp mill production permit allows a further 1,t of production. Minor investments are carried out in Q4 214 Kymi pulp mill 17,t capacity expansion proceeding well, start-up by the end of 215 Further debottlenecking potential at the Kaukas pulp mill 11 UPM
Growth projects Advancing in growth markets Investment in labelling materials and woodfree speciality papers at the UPM Changshu mill in China proceeding well, capacity 36,t, start-up by the end of 215 5% increase in self-adhesive labelstock coating capacity in APAC, start-up in Q1 215 Expansion of filmic labelstock production in Nowa Wies, Poland, start-up in Q1 215 12 UPM
Low investment needs in existing assets allow growth projects with modest total capex 1,2 Capital expenditure Estimate 1, Myllykoski acquisition 8 Depreciation 6 Uruguay acquisition 4 Strategic investments 329 45 2 13 UPM Operational investments 28 29 21 211 212 213 214e
Summary Strong Q3 214 results thanks to fast implementation of the EUR 2m profit improvement programme UPM is preparing a new profit improvement plan, to be communicated in the next few weeks Consistently strong cash flow and strengthening balance sheet form the foundation for dividend growth and continued transformation of the company Solid progress in the attractive growth projects 14 UPM
Shifting gear in UPM transformation Business portfolio development and value creation New businesses BIOFUELS BIOCHEMICALS BIOCOMPOSITES UPM Plywood UPM Paper ENA Biofuels: Lappeenranta biorefinery Pulp: 1% capacity increase UPM Biorefining Profit improvement programme EUR 2m UPM Energy UPM Paper Asia UPM Raflatac EBITDA target for growth initiatives EUR 2m Labelling materials Changshu expansion Self-adhesive labels: advancing in growth markets and in higher value added products 15 UPM
Q3 214 key figures 17 UPM Q3 214 Q3 213 Q2 214 Q1-Q3 214 Q1-Q3 213 213 Sales 2,415 2,472 2,441 7,337 7,466 1,54 EBITDA 346 311 298 957 853 1,155 % of sales 14.3 12.6 12.2 13. 11.4 11.5 Operating profit * ) 235 194 186 617 476 683 Profit before tax * ) 213 173 169 558 422 61 Earnings per share,.32.26.26.85.64.91 EUR * ) Operating cash flow 3 286 215 779 473 735 Net debt 2,726 3,31 2,925 2,726 3,31 3,4 Gearing % 36 45 4 36 45 41 * ) excluding special items
Cash flow Q3/14 Q3/13 Q2/14 Q1-Q3 214 Q1-Q3 213 213 EBITDA 346 311 298 957 853 1,155 Cash flow before change in working capital 366 294 279 942 796 1,85 Change in working capital -36 3-36 -71-185 -128 Finance costs and income taxes -3-38 -28-92 -138-222 Net cash from operating activities 3 286 215 779 473 735 Capital expenditure -11-79 -16-275 -246-337 Asset sales and acquisitions 14 21 1 84-15 4 Cash flow after investing activities 213 228 11 588 212 438 18 UPM
Maturity profile and liquidity Liquidity Liquidity on 3 September 214 was 1.7bn (cash and unused credit facilities) Committed credit facilities EUR 925bn syndicated credit facility EUR 5 million bilateral committed credit facilities EUR 425 million 1, Maturity profile of outstanding debt 1, Committed credit facilities maturities 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 214 215 216 217 218 219 22-226 227 228 229 23 214 215 216 217 218 219 22-226 227 228 229 23 19 UPM
UPM Biorefining Q3 214 vs. Q3 213 Operating profit excluding special items % of sales 1 2 8 16 6 12 4 8 Business performance Operating profit decreased slightly as improved production efficiency and higher delivery volumes nearly offset lower hardwood pulp prices. Pulp deliveries increased by 7% to 848, tonnes (789,). 2 Q1 12 Sales Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q3 214 48 Q3 213 484 4-1% Operating profit *) *) excluding special items Q3 214 63 Q3 213 67-4 EUR million 2 UPM
UPM Energy Q3 214 vs. Q3 213 Operating profit excluding special items % of sales 1 5 8 4 6 3 4 2 Business performance Operating profit increased mainly due to higher volumes and lower costs, more than offsetting the negative sales price impact. The average electricity sales price decreased by 2% to EUR 45.5/MWh (46.4/MWh). 2 Q1 12 Sales Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q3 214 113 Q3 213 19 1 4% Operating profit Q3 214 43 3 *) *) excluding special items Q3 213 4 EUR million 21 UPM
UPM Raflatac Q3 214 vs. Q3 213 Operating profit excluding special items % of sales 5 1 4 8 3 6 Business performance Operating profit decreased slightly, mainly due to a less favourable product mix. Growth in delivery volumes offset the impact of the lower sales margin. 2 4 1 Q1 12 Sales Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q3 214 312 Q3 213 37 Q4 13 Q1 14 Q2 14 Q3 14 2 2% Operating profit *) *) excluding special items Q3 214 21 Q3 213 22-1 EUR million 22 UPM
UPM Paper Asia Q3 214 vs. Q3 213 Operating profit excluding special items % of sales 5 15 4 12 3 9 2 6 Business performance Operating profit increased mainly due to lower variable and fixed costs. Average sales prices were lower mainly due to negative currency impacts. Paper deliveries increased by 3% to 35, tonnes (341,). 1 Q1 12 Sales Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q3 214 274 Q3 213 274 3 Operating profit *) *) excluding special items Q3 214 29 Q3 213 2 9 EUR million 23 UPM
UPM Paper ENA Q3 214 vs. Q3 213 Operating profit excluding special items % of sales 8 8 6 4 2-2 -4 Q1 12 Sales Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q3 214 1,33 Q3 213 1,392 6 4 2-2 -4-6% Business performance Operating profit increased due to lower variable and fixed costs, partly driven by the profit improvement programme, and more than offsetting the negative sales price and delivery volume impact. Q3 included energy-related refunds in Europe. The average paper price in euro was approximately 1% lower than last year. Paper deliveries decreased by 5% to 2,136, tonnes (2,258,). Operating profit *) *) excluding special items Q3 214 62 Q3 213 29 33 EUR million 24 UPM
UPM Plywood Q3 214 vs. Q3 213 Operating profit excluding special items % of sales 2 12 15 9 1 6 5 3 Business performance Operating profit increased mainly due to improved sales margins resulting from higher sales prices and lower variable costs. Fixed costs decreased. Deliveries decreased by 1% to 168, cubic metres (169,). -5 Q1 12 Sales Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Q3 14 Q3 214 11 Q3 213 98-3 3% Operating profit *) *) excluding special items Q3 214 7 Q3 213 1 6 EUR million 25 UPM
Chemical pulp market Q3 NBSK pulp price remained on Q2 level Q3 BHKP pulp price decreased (3%) from Q2 USD/tonne 1,1 Days of supply 65 Pulp inventories decreased in September 1, 9 NBSK 6 55 5 Hardwood inventories 8 7 6 BHKP 45 4 35 5 4 3 28 29 21 211 212 213 214 3 25 2 15 Softwood inventories 28 29 21 211 212 213 214 Source: FOEX Indexes Ltd. Source: PPPC World-2 statistics 27 UPM
Price development in Nordic and Helsinki power markets EUR/MWh 8, 7, 6, 5, 4, 3, 2, 1,, 26 27 28 29 21 211 212 213 214 8, 7, 6, 5, 4, 3, 2, 1,, Coal SRMC Front Year System Front Year Helsinki Front Year Source: Reuters 28 UPM
Graphic paper prices EUR/t 1 Europe USD/t 13 North America USD/t 13 China 9 8 12 11 1 12 11 1 7 9 9 6 8 8 5 7 6 7 6 4 5 5 3 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 'Jan-14 4 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 'Jan-14 4 News SC LWC WFC WFU Sources: PPI, RISI 29 UPM News SC LWC WFC WFU WFC freesheet, 128-157 g WFU sheet,1-3% virgin fiber WFU sheet, 1% virgin fiber
Graphic papers demand in Europe decreased 3% in Q3 214 ' tonnes 4 Magazine papers demand in Europe -4% in Q1-Q3/14 4 Newsprint demand in Europe -5% in Q1-Q3/14 4 Fine papers demand in Europe % in Q1-Q3/14 3 5 3 5 3 5 3 3 3 % 2 5-3% -7% 2 5 2 5 2 2 2 1 5 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Q1 14 Q3 14 1 5 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 Q3 12 Q1 13 Q3 13 Q1 14 Q3 14 1 5 Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 3Q 12 Q1 13 Q3 13 Q1 14 Q3 14 3 UPM Sources: Cepiprint/fine, PPPC
Growth in the European economy remains low Euro zone composite leading indicator* (Y/Y %) 6, 3, Paper demand growth (% trailing 3 month) Euro zone composite leading indicator 2 15 1 5, -3, Graphic paper demand growth -5-1 -15-6, -2 31 UPM Sources: Cepiprint, Cepifine, OECD