upm results q4 2015upm results q4 2015 ... company’s earnings in 2016, compared with 2015. upm...

Jussi Pesonen

President and CEO

2 February 2016

UPM RESULTS Q4 2015

| © UPM

Q4 2015 – growth projects started to deliver,

record-strong balance sheet

Best quarterly EBITDA in five years: EUR 363m (334m)

+ Profit improvement programme exceeded its target by 10%, reaching

annualised cost reduction impact of EUR 165m

+ Growth projects started to contribute to earnings, with strong start at the

expanded UPM Kymi pulp mill and UPM Biofuels reaching break-even level.

UPM Changshu PM3 ramp-up started well in December

Operating profit excluding special items came to EUR 225m (230m)

Strong operating cash flow at EUR 390m (462m)

Net debt decreased to a new record-low of EUR 2,100m (2,401m)

Board proposes a dividend of EUR 0.75 (0.70) per share

2

| © UPM

Sales

EUR 2,574m +2%

EBITDA

EUR 363m +29m

Q4 2015 – growth projects started to deliver,

record-strong balance sheet

3

Operating profit (*

EUR 225m -5m

Profit before tax (*

EUR 219m +3m

Q4 2015 vs. Q4 2014:

EPS (*

EUR 0.37 +0.05 (* excluding special items.

2015 vs. 2014:

Net debt

EUR 2,100m -301m

Operating cash flow

EUR 1,185m -56m

Dividend proposal

EUR 0.75 0.05

Net debt / EBITDA

1.55x -0.28x

ROE (*

12.1% +3.8pp

| © UPM

Profit improvement programme exceeded its

targets both in fixed and variable costs

0

50

100

150

200

Q314 Q414 Q115 Q215 Q315 Q415

4

Variable cost

savings

Annualised cost reduction

impact of the programme

reached EUR 165m in Q4 15,

compared with Q3 14.

Fixed cost

savings from

closures (*

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

four paper machines were closed in H1 15

EUR million

EUR 150m target

exceeded by 10%

| © UPM

0

50

100

150

200

250

300

350

400

450

EBITDA

Q4/14

EBITDA

Q4/15

EBITDA in Q4 2015 vs. Q4 2014

Raflatac

Paper

AsiaOther

operations

and

eliminations

Energy

Biorefining

Paper

ENA

Plywood

0

50

100

150

200

250

300

350

400

450

EBITDA

Q4/14

EBITDA

Q4/15

EURm

Prices

Variable

costs

Fixed

costs

Deliveries

Profit improvement actions and

favourable currencies outweighed

the decrease in sales prices EURm

Favourable pulp market, currencies and

costs benefited UPM Biorefining.

Increased pulp costs and currency hedges

impacted the paper businesses

5

33413.2%

36314.1%

Currency,

net

impact 33413.2%

36314.1%

| © UPM

Operating profit *) by business area

6

0

2,5

5

7,5

10

12,5

0

10

20

30

40

50

Q113

Q313

Q114

Q314

Q115

Q315

0

5

10

15

20

25

0

30

60

90

120

150

Q113

Q313

Q114

Q314

Q115

Q315

0

15

30

45

60

0

20

40

60

80

Q113

Q313

Q114

Q314

Q115

Q315

0

2

4

6

8

10

0

10

20

30

40

50

Q113

Q313

Q114

Q314

Q115

Q315

-4

-2

0

2

4

6

-50

-25

0

25

50

75

Q113

Q313

Q114

Q314

Q115

Q315

0

4

8

12

16

20

0

5

10

15

20

25

Q113

Q313

Q114

Q314

Q115

Q315

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

Business area returns and long-term targets

7

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

20

22ROCE %ROCE % (* ROCE %ROCE % CF/CE % ROCE %

UPM

Paper Asia

UPM

Paper ENA

UPM

Plywood

UPM

Raflatac

UPM

EnergyUPM

Biorefining

(* shareholdings in UPM Energy

valued at fair valueLong-term return target

| © UPM

Group profitability and targets

0

2

4

6

8

10

12

8

0

2

4

6

8

10

12

0

20

40

60

80

100

0

1 000

2 000

3 000

4 000

5 000

Operating profit excl. special items

ROEexcl. special items

Net Debt

Gearing

Max gearing

Min target

EURm %%% of sales Operating profit ROE Gearing

(* (*

(* the figures include the EUR 265 million increase in the fair value of

the forests in Finland in Q3 2015.

| © UPM

Strong cash flow

9

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

Q31

5

Operating cash flow

Cash flow

after investing

activities

EUR million Cash flow, trailing 12 months

• Q4 2015 operating cash

flow was EUR 390m

(462m)

• In Q4 2015, working capital

decreased by EUR 60m

(EUR 144m)

• In 2015, operating cash flow

was EUR 1,185m (1,241m),

EUR 2.22 per share (2.33)

| © UPM

Balance sheet continued to strengthen

10

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

1.6

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

26

Liquidity was EUR 1.7bn at the end of Q4 2015

Repayments total EUR 0.24bn in 2016

| © UPM

Several growth projects completed – focus turns

to reaping the benefits in 2016 and beyond

11

Lappeenranta

biorefinery

120m litres of

renewable diesel

UPM Plywood

Otepää mill

expansion

to 90,000m3

Kymi

pulp mill

expansion

170,000t

UPM Raflatac

50% expansion in

APAC, growth in filmic

labelstock in Poland

UPM Paper Asia

Changshu

new speciality

paper machine

360,000t

Pietarsaari

pulp mill

expansion

70,000t

Fray Bentos

pulp mill

expansion

100,000t

Kaukas

pulp mill efficiency

improvement, paper and

pulp decoupling completed

Q2 2014

Q3 2014

Q4 2014

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q1 2016

Q2 2016

Q3 2016

Q4 2016

Capex so far EUR 660m Remaining capex EUR 110m

| © UPM

| © UPM

Low investment needs in existing assets allow

growth projects with modest total capex

12

0

200

400

600

800

1 000

1 200

2008 2009 2010 2011 2012 2013 2014 2015 2016e

EUR million

Operational investments

329

Capital expenditure

Strategic investments

Depreciation

Uruguay

acquisition

Myllykoski

acquisition

486

Estimate

375 350

| © UPM

Outlook for 2016

• UPM’s profitability improved in 2015 and the improvement is expected to continue in 2016. The business performance in 2016 is underpinned by the company’s growth projects and continuous cost efficiency measures.

• UPM’s growth projects are expected to contribute positively to the company’s earnings in 2016, compared with 2015. UPM continues its measures to reduce variable and fixed costs also in 2016. Currencies are expected to contribute positively as hedges roll over, assuming relevant currencies stay at about the same level as at the end of 2015.

| © UPM13

| © UPM

0,00

0,10

0,20

0,30

0,40

0,50

0,60

0,70

0,80

0,90

2008 2009 2010 2011 2012 2013 2014 2015

Dividend proposal

EUR per

share

0.400.45

0.55

14

Dividend policy

• UPM aims to pay an attractive

dividend, 30-40% of operating

cash flow per share

Board’s dividend proposal

for 2015

• EUR 0.75 (0.70) per share

• 34% of 2015 operating cash

flow per share

0.60 0.60 0.60

Dividend

0.700.75

| © UPM

Summary

UPM’s profitability improved in both Q4 and full year 2015

• Profit improvement programme exceeded its targets

• Several growth projects were completed

• Strong cash flow, record-strong balance sheet

UPM is well positioned for 2016

• Growth projects are expected to contribute

• Cost efficiency measures continue

• Impact of favourable currencies, as hedges roll over

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. Continuous

cost efficiency

improvement

UPM strategy in action

16

UPM

Biorefining

UPM

Paper

Asia

UPM

RaflatacUPM

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 performance

Industry-leading

balance sheet

Attractive dividend

Strong cash flowFocused

investments

| © UPM

Q4 2015 – growth projects started to

deliver, record-strong balance sheet

EUR million Q4

2015

Q4

2014

Q3

2015 2015 2014

Sales 2,574 2,531 2,530 10,138 9,868

EBITDA 363 334 345 1,350 1,306

% of sales 14.1 13.2 13.6 13.3 13.2

Operating profit (* 225 230 507 1,163 847

Profit before tax (* 219 216 492 1,096 774

Earnings per share, EUR (* 0.37 0.32 0.76 1.75 1.17

ROE, % (* 9.9 9.2 20.7 12.1 8.3

Operating cash flow 390 462 363 1,185 1,241

Net debt 2,100 2,401 2,465 2,100 2,401

Gearing, % 26 32 31 26 32

19

(* excluding special items

| © UPM

Cash flow

EUR million Q4/15 Q4/14 Q3/15 2015 2014

EBITDA 363 334 345 1,350 1,306

Cash flow before change in working capital 364 349 352 1,365 1,291

Change in working capital 60 144 48 -8 73

Finance costs and income taxes -34 -31 -37 -172 -123

Net cash from operating activities 390 462 363 1,185 1,241

Capital expenditure -110 -103 -128 -432 -378

Asset sales and acquisitions 8 47 21 40 131

Cash flow after investing activities 288 406 256 793 994

20

| © UPM

Maturity profile and liquidity

21

0

100

200

300

400

500

600

700

800

900

1 000

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

2016

2017

2018

2019

2020

2021-2

026

2027

2028

2029

2030

EUR million

Liquidity

Liquidity on 31 December 2015 was EUR 1.7bn

(cash and unused credit facilities)

Bilateral committed credit facilities EUR 1.025bn

Committed credit facilities

Maturity profile of outstanding debt Committed credit facilities’ maturities

| © UPM22

EBITDA 2015

EUR 1,350m

Capital employed, December 2015

EUR 11.0bn

UPM

Energy

UPM

Biorefining

UPM

Raflatac

UPM

Paper Asia

UPM

Paper ENA

UPM

Plywood

Other operations

UPM

Energy

UPM

Biorefining

UPM

Raflatac

UPM

Paper Asia

UPM

Paper ENA

UPM Plywood

UPM businesses by EBITDA generation and

capital employed

| © UPM

0

25

50

75

100

125

150

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

0

5

10

15

20

25

30

UPM Biorefining

23

Operating profit excluding special items

EUR million % of salesMarket review 2015

• Global chemical pulp demand

remained robust and growth was well

distributed over several regions.

• In Europe the average NBSK pulp

market price was 10% higher and the

average BHKP price was 26% higher

than in the previous year.

• Demand for advanced biofuel

increased, and regulations developed

in favour of advanced biofuels.

| © UPM

UPM Energy

24

0

10

20

30

40

50

60

70

80

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

0

10

20

30

40

50

60

70

80

Operating profit excluding special items Market review 2015

• The Nordic and Finnish hydrological

balance improved and was well above the

long-term average level in December.

• The average Finnish area spot price on

the Nordic electricity exchange was 18%

lower than the same period last year,

because of mild temperatures and

improved hydrology.

• The Finnish area price was above the

Nord Pool system price because of

dependency on imports.

• At year end the Finnish area front-year

forward electricity price closed 15% lower

than on the same date the previous year.

EUR million % of sales

| © UPM

UPM Raflatac

25

0

10

20

30

40

50

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

0

2

4

6

8

10


• Global demand for self-adhesive label

material increased by approximately

4–5% compared with the previous year.

• Demand strengthened particularly in

Europe, thanks to higher consumer

spending.

• In North America, demand remained

robust, while in Asia, growth continued

at a lower level than in the previous

year. In Latin America, demand was at

the previous year’s level.


| © UPM

UPM Paper Asia

26

0

10

20

30

40

50

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

0

3

6

9

12

15


• In the Asia-Pacific region, fine paper

demand decreased slightly. Office

paper demand growth continued.

• Overcapacity prevailed in all paper

grades, and the preliminary United

States anti-dumping duties added

regional supply.

• The average market price in local

currencies was slightly lower in most

markets compared with 2014.

• Label and release paper demand

increased globally, and average prices

were slightly lower than in 2014.


| © UPM

UPM Paper ENA

27

-40

-20

0

20

40

60

80

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

-4

-2

0

2

4

6

8


Europe

• Demand for graphic paper was 4%

lower than in 2014. The decline was

steeper in newsprint and magazine

paper, while uncoated fine paper

demand decline was more moderate.

• Publication paper prices were on

average 5% lower than in 2014, while

fine paper prices were on average 4%

higher than in 2014.

North America

• Demand for magazine papers was 7%

lower than in 2014.

• The average US dollar price for

magazine papers were on average 1%

higher than in 2014.


| © UPM

UPM Plywood

28

-5

0

5

10

15

20

Q1 12

Q3 12

Q1 13

Q3 13

Q1 14

Q3 14

Q1 15

Q3 15

-5

0

5

10

15

20


• Plywood demand in Europe increased

slightly. Demand grew in both industrial

applications and construction-related

end-use segments.

• The plywood market in Europe was in

balance during the first half of 2015.

Imports increased over the course of

the year, leading to price pressure in

some product segments in the fourth

quarter.


| © 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 2016

USD/tonne

Q4 NBSK pulp price decreased 3% from Q3

Q4 BHKP pulp price unchanged from Q3

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

0

10

20

30

40

50

60

70

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

1000

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

News SC LWC

WFC WFU

EUR/t

Europe

400

500

600

700

800

900

1000

1100

1200

1300

Jan-

08Ja

n-09

Jan-

10Ja

n-11

Jan-

12Ja

n-13

Jan-

14Ja

n-15

News SC LWC

WFC WFU

USD/t USD/t

ChinaNorth America

Sources: PPI, RISI

Graphic paper prices

400

500

600

700

800

900

1000

1100

1200

1300

WFC r (100% chemical pulp)

Reels (mixedchemical/mechanical pulp)

Uncoated Woodfree Reels (100%chemical pulp)

| © UPM

1 500

2 000

2 500

3 000

3 500

4 000

Q1

10

Q4

10

Q3

11

Q2

12

Q1

13

Q4

13

Q3

14

Q2

15

33

1 500

2 000

2 500

3 000

3 500

4 000

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

5Q

3 1

5

Sources: Cepiprint/fine, PPPC

Fine papers demand

in Europe -2% 2015

1%

Graphic papers demand in Europe decreased

by 2% in Q4 and 4% in 2015 from previous year

'000 tonnes

1 500

2 000

2 500

3 000

3 500

4 000

Q1 1

0

Q4 1

0

Q3 1

1

Q1 1

3

Q4 1

3

Q3 1

4

Q2 1

5

Newsprint demand

in Europe -6% 2015Magazine papers demand

in Europe -5% 2015

-4% -4%

| © 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

Overcapacity in European graphic paper

is visible in margins

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

35

Cash cost of a marginal producer

Price

EUR/t

Sources: PPI, RISI, Pöyry

upm results q4 2015upm results q4 2015 ... company’s earnings in 2016, compared with 2015. upm...

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