upm results q1 2015good profitability continued in q1 2015 • profit improvement actions and...

Jussi Pesonen

President and CEO

28 April 2015

UPM RESULTS Q1 2015

| © UPM

Q1 2015 – good profitability continued

Operating profit excl. special items increased to EUR 204m (196m)

+ Underpinned by profit improvement actions and favourable

currencies, mitigated by hedging

− Publication paper prices and paper deliveries in Europe, as well

as electricity sales prices had a negative impact

Good performance in UPM Biorefining, UPM Plywood, UPM

Raflatac and UPM Paper Asia

UPM is well positioned for earnings growth – outlook is unchanged

UPM invests in the top performing plywood business

by expanding the Otepää mill in Estonia

| © UPM

Net debt

EUR 2,419m -358m

Sales

EUR 2,486m 0%

EBITDA

EUR 325m +2m


Operating cash flow

EUR 108m -156m

(* excluding special items3

Operating profit (*

EUR 204m +8m

Profit before tax (*

EUR 182m +6m

Operating cash flow / share, 12 month

EUR 2.03 +0.34

Net debt / EBITDA

1.8x -0.5x

Q1 2015 vs. Q1 2014:

EPS (*

EUR 0.29 +0.02

ROE (*

8.1% +0.4pp

| © UPM

0

50

100

150

200

250

300

350

400

450

EBITDA

Q1/14

EBITDA

Q1/15

EBITDA in Q1 2015 vs. Q1 2014

Raflatac

Paper

AsiaOther

operations

and

eliminations

Energy

Biorefining

Paper

ENA

Plywood

0

50

100

150

200

250

300

350

400

450

EBITDA

Q1/14

EBITDA

Q1/15

EURm

Prices

Variable

costs

Fixed

costs

Deliveries

Profit improvement actions and currencies

offset the decrease in publication paper

and electricity prices, paper deliveries EURm

Significant improvement in UPM Biorefining

and UPM Plywood, UPM Paper ENA and

UPM Energy clearly lower

4

32313.0%

32513.1%

32313.0%

32513.1%

Currency,

net

impact

| © UPM

Profit improvement programme targeting EUR 150

million of fixed and variable cost savings

0

50

100

150

200

Q314 Q414 Q115 Q215 Q315 Q415 Q116

5

Other fixed and

variable cost

savings

Full annualised EUR 150 million impact of the programme is

expected to realise by the end of 2015, as compared with Q3/14

Fixed cost savings

from planned

closures (*

(* 800,000 tonnes of publication paper capacity in Europe: three paper

machines were closed in Q1/15, employee consultation process is

proceeding regarding one machine

EUR million

31%

realised in

Q1 2015

| © UPM

Operating profit *) by business area

6

0

2,5

5

7,5

10

12,5

0

10

20

30

40

50

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

0

4

8

12

16

20

24

0

20

40

60

80

100

120

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

0

10

20

30

40

50

0

20

40

60

80

100

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

0

2

4

6

8

10

0

10

20

30

40

50

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

-4

-2

0

2

4

6

-50

-25

0

25

50

75

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

0

4

8

12

16

20

0

5

10

15

20

25

Q113

Q213

Q313

Q413

Q114

Q214

Q314

Q414

Q115

EURm % of salesUPM Paper Asia EURm % of salesUPM Paper ENA EURm % of salesUPM Plywood

EURm % of salesUPM RaflatacEURm % of salesUPM EnergyEURm % of salesUPM Biorefining

*) excluding special items

| © UPM

Solid cash flow

7

0

200

400

600

800

1 000

1 200

1 400

Q10

8

Q30

8

Q10

9

Q30

9

Q11

0

Q31

0

Q11

1

Q31

1

Q11

2

Q31

2

Q11

3

Q31

3

Q11

4

Q31

4

Q11

5

Operating cash flow

Cash flow

after investing

activities

EUR million Cash flow, trailing 12 months

• Q1 2015 operating cash

flow was EUR 108m

(264m)

• In Q1 2015, working capital

increased by EUR 147m

(decreased by EUR 1m),

mainly due to seasonal

factors

• In the latest 12 months,

operating cash flow was

EUR 1,085m (896m), i.e.

EUR 2.03 per share

| © UPM

Strong balance sheet

8

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

2008

2009

2010

2011

2012

2013

2014

2015

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

Net debt, EUR millionNet debt / EBITDA(trailing 12 months)

Net debt

Net debt / EBITDA

1.8

1 500

2 000

2 500

3 000

3 500

4 000

4 500

5 000

2008

2009

2010

2011

2012

2013

2014

2015

20

30

40

50

60

70

80

90

Net debt, EUR million Gearing %

Net debt

Gearing

31

Liquidity was EUR 0.9bn at the end of Q1 2015

Repayments total EUR 0.3bn in 2015

| © UPM

Outlook for 2015

• The improved profitability achieved in 2014 is expected to continue in 2015, and there are prospects for further improvement.

• Profitability is underpinned by the EUR 150 million profit improvement programme, as well as the first positive impacts from the company’s growth projects.

• Profitability is affected by lower publication paper prices and lower electricity sales prices in the beginning of the year. The current weakened euro and lower oil price are supportive for the company’s earnings.

| © UPM9

| © UPM

UPM invests in the top performing plywood

business by expanding the Otepää mill

10

• UPM will almost double the

production at the Otepää plywood

mill in Estonia to 90,000 m3

• Investment includes a new bio

power plant at the mill

• The total investment of EUR 40

million will be completed by the

end of 2016

• Enables serving the growing

demand in key customer

industries

| © UPM

Lappeenranta biorefinery started

commercial production

• World’s first biorefinery producing

120 million litres of wood based

advanced renewable diesel

• Commercial production started in

January 2015, ramp up still in

early stage

• Production technology works as

planned and the high-quality

product fulfils customer

specifications

• Distribution starts through

Finnish service stations St1 and

ABC in May 201511

| © UPM

10% increase in pulp production capacity

• Pietarsaari pulp mill

modernisation and 70,000 tonnes

capacity expansion completed in

June 2014

• Fray Bentos pulp mill production

permit allows a 100,000 tonnes

increase in production. Minor

investments were carried out in

Q4 2014

• Kymi pulp mill 170,000 tonnes

capacity expansion proceeding

well, start-up by the end of 2015

12

| © UPM

Advancing in growth markets

• Investment in labelling materials

and woodfree speciality papers

at the UPM Changshu mill in

China proceeding well. Capacity

360,000 tonnes, start-up by the

end of 2015

• 50% increase in self-adhesive

labelstock coating capacity in

APAC, start-up in Q2 2015

• Expansion of filmic labelstock

production in Nowa Wies,

Poland, start-up in Q2 2015

13

| © UPM

Low investment needs in existing assets allow

growth projects with modest total capex

14

0

200

400

600

800

1 000

1 200

2008 2009 2010 2011 2012 2013 2014 2015e 2016e

EUR million

Operational investments

329

Capital expenditure

Strategic investments

Depreciation

Uruguay

acquisition

Myllykoski

acquisition

500

Estimate

375

| © UPM

Summary

Good profitability continued in Q1 2015

• Profit improvement actions and currencies offset the market

headwinds in UPM Paper ENA and UPM Energy

UPM is well positioned for earnings growth

• Profit improvement programme has more than EUR 100m of

further annualised impact to materialise by the end of 2015

• More than half of the growth capex has been spent, nearly all of

the EUR 200m EBITDA impact is yet to come

• Current exchange rates promise further tailwind

Strong cash flow and balance sheet

• UPM is in a unique position to simultaneously distribute

attractive dividend, implement growth projects and

act on strategic opportunities

15

| © UPM

1. Profit

improvement

programme

EUR 150m

UPM strategy in action

16

UPM

Biorefining

UPM

Paper

Asia

UPM

Raflatac

UPM

Energy

UPM

Paper

ENA

UPM

Plywood

2. EBITDA target

for growth projects

EUR 200m

3. Business portfolio

development and

value creation

BIOCHEMICALS

BIOCOMPOSITES

BIOFUELS

4. New businesses

Biofuels:

Lappeenranta

biorefinery

Pulp: 10%

capacity increase

Labelling materials:

Changshu expansion

Self-adhesive labels:

expansion in growth

markets and in higher

value added products

Plywood:

Otepää expansion

| © UPM

Strengths of UPM’s model

17

Top performanceIndustry-leading

balance sheet

Attractive dividend

Strong cash flowFocused

investments

| © UPM


EUR million Q1

2015

Q1

2014

Q4

2014

2014

Sales 2,486 2,481 2,531 9,868

EBITDA 325 323 334 1,306

% of sales 13.1 13.0 13.2 13.2

Operating profit (* 204 196 230 847

Profit before tax (* 182 176 216 774

Earnings per share, EUR (* 0.29 0.27 0.32 1.17

ROE, % (* 8.1 7.7 9.2 8.3

Operating cash flow 108 264 462 1,241

Net debt 2,419 2,777 2,401 2,401

Gearing, % 31 37 32 32

19

(* excluding special items

| © UPM

Cash flow

EUR million Q1

2015

Q1

2014

Q4

2014

2014

EBITDA 325 323 334 1,306

Cash flow before change in working capital 292 297 349 1,291

Change in working capital -147 1 144 73

Finance costs and income taxes -37 -34 -31 -123

Net cash from operating activities 108 264 462 1,241

Capital expenditure -82 -68 -103 -378

Asset sales and acquisitions 2 69 47 131

Cash flow after investing activities 28 265 406 994

20

| © UPM

Maturity profile and liquidity

21

0

100

200

300

400

500

600

700

800

900

1 000

2015

2016

2017

2018

2019

2020

2021-2

026

2027

2028

2029

2030

EUR million

0

100

200

300

400

500

600

700

800

900

1 000

2015

2016

2017

2018

2019

2020

2021-2

026

2027

2028

2029

2030

EUR million

Liquidity

Liquidity on 31 March 2015 was EUR 0.9bn

(cash and unused credit facilities)

Committed credit facilities EUR 0.475bn

Maturity profile of outstanding debt Committed credit facilities’ maturities

| © UPM

Currency exposure

22

USD GBP JPY Others

EURm 810 500 160 170

• Key currency exposures USD, GBP and JPY

• Policy to hedge an average of 50% of the estimated net

currency cash flow for the next 12 months

Estimated annual foreign currency net cash flow, before hedging

| © UPM

UPM Biorefining Q1 2015 vs. Q1 2014

23

0

20

40

60

80

100

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

0

4

8

12

16

20

Q1 2015 533Q1 2014 496

SalesEUR million

Q1 2015 97Q1 2014 56

Operating profit excluding special items

EUR million

Operating profitEUR million*)


EURmillion

% of salesBusiness performance

• Operating profit increased mainly due

to higher euro-denominated average

pulp sales prices. In the comparison

period profitability was negatively

impacted by scheduled maintenance

shutdown at the UPM Kaukas pulp

mill.

• Pulp deliveries decreased by 1% to

810,000 tonnes (816,000).

7% 41

| © UPM

UPM Energy Q1 2015 vs. Q1 2014

24

0

20

40

60

80

100

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

0

10

20

30

40

50

Q1 2015 99Q1 2014 124

SalesEUR million

Q1 2015 38Q1 2014 56




EURmillion

Business performance

• Operating profit decreased due to

lower average electricy sales price

and lower nuclear and hydropower

generation volumes, partly relating to

an unplanned outage in Olkiluoto 2

nuclear plant.

• The average electricity sales price

decreased by 13% to EUR 40.0/MWh

(45.8/MWh).

EUR million % of sales

-18-20%

| © UPM

UPM Raflatac Q1 2015 vs. Q1 2014

25

0

10

20

30

40

50

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

0

2

4

6

8

10

Q1 2015 342Q1 2014 300

SalesEUR million

Q1 2015 21Q1 2014 20



EURmillion


• Operating profit increased due to

higher delivery volumes.



114%

| © UPM

UPM Paper Asia Q1 2015 vs. Q1 2014

26

0

10

20

30

40

50

Q1 12

Q2 12

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q2 15

0

3

6

9

12

15

Q1 2015 298Q1 2014 277

SalesEUR million

Q1 2015 22Q1 2014 25




EURmillion


• Operating profit decreased as the net

impact of changes in currencies

including hedging was slightly negative.

• Deliveries increased by 1% to 349,000

tonnes (347,000).


8% -3

| © UPM

UPM Paper ENA Q1 2015 vs. Q1 2014

27

-40

-20

0

20

40

60

80

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

-4

-2

0

2

4

6

8

Q1 2015 1,256Q1 2014 1,334

SalesEUR million

-37Q1 2015 5Q1 2014 42




EURmillion

-6%


• Operating profit decreased mainly due to

higher euro-denominated pulp costs and

lower delivery volumes.

• The average price for all paper deliveries in

euro was at the previous year’s level.

Favourable currency impacts on export

prices and an improved product mix offset

the negative impacts of lower publication

paper prices in Europe.

• Paper deliveries decreased by 6% to

2,023,000 tonnes (2,148,000).


| © UPM

UPM Plywood Q1 2015 vs. Q1 2014

28

-5

0

5

10

15

20

Q1 12

Q2 12

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q4 13

Q1 14

Q2 14

Q3 14

Q4 14

Q1 15

-5

0

5

10

15

20

Q1 2015 119Q1 2014 114

SalesEUR million

8Q1 2015 19Q1 2014 11


Operating profitEUR million*) EUR

million


• Operating profit increased due to lower

variable costs and higher delivery

volumes.

• Deliveries increased by 6% to 199,000

cubic metres (188,000).



4%

| © UPM

Chemical pulp market

30

Source: PPPC World-20 statistics

Pulp inventories

Days of

supply

300

400

500

600

700

800

900

1 000

1 100

2008 2009 2010 2011 2012 2013 2014 2015

USD/tonne

Q1 NBSK pulp price decreased 3% from Q4

Q1 BHKP pulp price increased 2% from Q4

BHKP

NBSK

Source: FOEX Indexes Ltd.

15

20

25

30

35

40

45

50

55

60

65

2008 2009 2010 2011 2012 2013 2014 2015

Hardwood

inventories

Softwood

inventories

| © UPM

Price development in the Nordic and Helsinki power markets

31

Source: Reuters

0

10

20

30

40

50

60

70

80

0

10

20

30

40

50

60

70

80

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

EUR/MWh

Coal SRMC Front Year System Front Year Helsinki Front Year

Finnish and Nordic electricity prices

| © UPM3232

400

500

600

700

800

900

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

News SC LWC

WFC WFU

EUR/t

Europe

500

600

700

800

900

1000

1100

1200

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15News SC LWC

WFC WFU

USD/t USD/t

ChinaNorth America

Sources: PPI, RISI

Graphic paper prices

500

600

700

800

900

1000

1100

1200

WFC r (100% chemical pulp)

Reels (mixedchemical/mechanical pulp)

Uncoated Woodfree Reels (100%chemical pulp)

| © UPM

1 000

1 500

2 000

2 500

3 000

3 500

Q1

10Q

3 10

Q1

11Q

3 11

Q1

12Q

3 12

Q1

13Q

3 13

Q1

14Q

3 14

Q1

15

33

1 000

1 500

2 000

2 500

3 000

3 500

Q1 1

0Q

3 1

0Q

1 1

1Q

3 1

1Q

1 1

23Q

12

Q1 1

3Q

3 1

3Q

1 1

4Q

3 1

4Q

1 1

5

Sources: Cepiprint/fine, PPPC

Fine papers demand

in Europe

-4%

Graphic papers demand in Europe decreased

by 5% in Q1 2015

'000 tonnes

1 000

1 500

2 000

2 500

3 000

3 500

Q1 1

0Q

3 1

0Q

1 1

1Q

3 1

1Q

1 1

2Q

3 1

2Q

1 1

3Q

3 1

3Q

1 1

4Q

3 1

4Q

1 1

5

Newsprint demand

in EuropeMagazine papers demand

in Europe

-3%-8%

| © UPM

-20

-15

-10

-5

0

5

10

15

20

-6,0

-3,0

0,0

3,0

6,0

Paper demand growth (% trailing 3 month)

Sources: Cepiprint, Cepifine, OECD

Euro zone composite leading indicator* (Y/Y %)

Graphic paperdemand growth

Growth in the European economy remains low

Euro zone composite leading indicator

34

upm results q1 2015good profitability continued in q1 2015 • profit improvement actions and...

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