UPM Half-Year Financial Report 2021: Earnings improved rapidly, UPM is fit for future growth

H1 2021 highlights
- Sales increased by 6% to EUR 4,618 million (4,364 million in H1 2020)
- Comparable EBIT increased by 22% to EUR 586 million (482 million), and was 12.7% (11.0%) of sales
- Operating cash flow was EUR 526 million (293 million)
- UPM's transformative growth projects proceed on budget and on schedule
- Net debt increased to EUR 750 million (301 million) and net debt to EBITDA ratio was 0.49 (0.19)
- Cash funds and unused committed credit facilities totalled EUR 2.5 billion at the end of June
- UPM started the basic engineering phase of a next-generation biofuels refinery in January
- UPM joined The Climate Pledge in February, committed to reach the targets of the Paris Agreement 10 years in advance

Jussi Pesonen, President and CEO, comments on the Q2 results:
“UPM delivered a very good second quarter, and rapid recovery of our earnings continued. In the exceptional economic environment, demand for UPM’s products was strong, and overall, our price increases more than offset rising input costs. At the same time, our transformative growth projects continued on schedule and on budget, and we are in an excellent position going forwards.

Our Q2 sales increased by 15% to EUR 2,384 million, and comparable EBIT was up by 51% rising to EUR 307 million from the lockdown affected Q2 of last year. Operating cash flow increased to EUR 308 million. Net debt at the end of June was EUR 750 million, and our financial position remains strong with EUR 2.5 billion in cash funds and unused committed credit facilities.

The most notable improvement was seen in UPM Biorefining, where pulp and sawn timber prices soared, and the business area made its best second quarter ever. Result was held back by the scheduled maintenance shutdown at the Fray Bentos pulp mill in Uruguay, and a shutdown due to a fire at the Lappeenranta biorefinery in Finland.

Strong markets and good profitability continued for UPM Raflatac and UPM Specialty Papers as recent trends in consumer behaviour, e-commerce and retail prevailed. Labelling materials and specialty papers comprise nearly a third of our sales. Once again, UPM Raflatac had a great quarter, despite exceptional pressure on input costs. These excellent results are not only due to strong market demand but also agile margin and mix management, as well as unrelenting focus on efficiency.

Demand for graphic papers in Europe increased 28% compared to Q2 of last year, which was affected by lockdowns. Strong demand and the timely efficiency measures taken last year resulted in good asset utilisation rates. In terms of profit the quarter was very challenging for UPM Communication Papers due to rapidly rising input costs and market prices for publication papers based on January contracts. The sale of the UPM Shotton paper mill was announced in May and will be completed during Q3.

The markets for UPM Energy remained good and profitability improved due to higher electricity sales prices. Hydropower generation remained on a good level, but nuclear generation was lower due to the maintenance shutdown at the Olkiluoto nuclear power plant. The Olkiluoto 3 reactor project is in its final stages and will be connected to the national grid for test runs during Q4. When in commercial operation, the unit will significantly increase the CO2-free electricity in the Finnish markets.

Profitability at UPM Plywood increased primarily due to increased delivery volumes and high operational efficiency. Demand for plywood remained strong in construction related end-uses and improved in industrial applications.

UPM’s transformative growth projects advanced according to plan. In Uruguay, there are now 5,000 workers on our construction sites. In Paso de los Toros, construction is progressing well in all main areas, and the Montevideo port terminal is close to completion. In Leuna, Germany, our biochemicals investment is proceeding well both at the construction site and in business preparation.

UPM is committed to providing solutions for mitigating global climate challenge. The most efficient way to mitigate climate change is to reduce the use of fossil energy and raw materials. We are contributing through sustainable forest management and innovative climate positive products, thereby enabling more sustainable consumption. We are also committed to cutting our CO2 emissions by 65%t by 2030, faster than the EU target. Our industrial scale initiatives in biochemicals and biofuels are tangible examples of our purpose to create a future beyond fossils.

All in all, throughout Q2 we were able to run our businesses successfully in the rapidly changing market environment, marked by rising prices and demand. More importantly, I am confident that our Biofore strategy is creating long-term value in a world where consumers, businesses and governments are actively looking for sustainable solutions.”

Outlook for 2021
The global economy has started recovering in 2021 from the deep downturn experienced in 2020. World regions will progress at different pace, and China has led this development. Demand for most UPM products is influenced by overall economic activity and hence, depends on the shape and rate of the economic recovery.

The COVID-19 pandemic continues to cause uncertainty in 2021. In 2020, lockdowns had a significant negative impact on graphic paper demand but supported the strong demand for self-adhesive labelling materials and specialty papers. Opening of the economies is likely to allow for some normalisation of these demand impacts.

Sales prices for many UPM products are expected to increase in H2 2021 from H1 2021, including graphic paper prices in Europe. Pulp sales prices increased rapidly in H1 2021 and are expected to be higher on average in H2 2021 than in H1 2021.

With improving global economy, many variable cost items are expected to increase in 2021. UPM will continue to manage margins with product pricing, optimising its product and market mix, efficient use of assets as well as by taking measures to improve variable and fixed cost efficiency.

UPM’s comparable EBIT is expected to increase both in H2 2021 compared with H1 2021 and increase clearly in the full year 2021 compared with 2020.