UPM Interim Report Q3 2022: UPM delivers all-time high quarterly results with excellent performance in all businesses

Q3 highlights

  • Sales increased by 36% to EUR 3,420 million (2,523 million in Q3 2021)
  • Comparable EBIT grew by 84% to EUR 779 million, 22.8% of sales (424 million, 16.8%)
  • Operating cash flow was EUR -201 million (318 million), impacted by cash flow from energy hedges. Other operating cash flows were largely as expected
  • The rise in energy futures prices continued, causing short-term cash outflow impact from energy hedges. Respectively, it indicates the strong earnings potential of UPM Energy
  • Sales prices increased in all business areas and more than offset the negative impact of higher variable costs
  • Cash funds and unused committed credit facilities totalled EUR 5.2 billion at the end of Q3 2022. UPM signed EUR 4.3 billion of credit facilities during Q3
  • In August, EcoVadis recognised UPM on Platinum level based on the company’s sustainability performance
  • In September, UPM Raflatac completed the acquisition of AMC AG
  • In October, the new deep sea pulp terminal in the port of Montevideo in Uruguay was inaugurated
Jussi Pesonen, UPM President and CEO
© UPM
04.11.2022
Source:  Company news

Q1–Q3 highlights

  • Sales increased by 19% to EUR 8,489 million (7,141 million in Q1–Q3 2021)
  • Comparable EBIT increased by 43% to EUR 1,443 million (1,010 million), and was 17.0% (14.1%) of sales
  • Operating cash flow was EUR -1,068 million (844 million), impacted by cash flows from energy hedges in the highly exceptional energy markets
  • Net debt increased to EUR 3,133 million (667 million) and the net debt to EBITDA ratio was 1.39 (0.38). A significant part of the increase in net debt is temporary, due to the cash flow impacts of energy hedges and future energy generation
  • UPM decided to suspend its deliveries to Russia, the purchasing of wood in Russia and the UPM Chudovo plywood mill operations
  • The strike in Finland affected production and delivery volumes in the early part of the year. Estimated full-year earnings impact is not material
  • In April, UPM and the Paperworkers’ Union agreed on the first-ever business-specific collective labour agreements
  • In June, UPM announced the sale of the Steyrermühl site in Austria to secure competitiveness and adapt newsprint production to long-term market development

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

“UPM reached all-time high quarterly results in Q3. The strength of our operating model was on full display as we simultaneously delivered record quarterly results in UPM Communication Papers, UPM Specialty Papers, UPM Raflatac, UPM Energy and UPM Biofuels. UPM Fibres and UPM Plywood achieved strong results, too. All in all, Q3 was a great success considering the highly uncertain and volatile business environment.

Good demand continued in most of our businesses, and sales prices more than offset the impact of continued increases in variable costs. Delivery volumes were back to normal after the exceptional H1 and operational efficiency was on a good level. No major downside risks materialised during the quarter.

Our sales grew by 36% to EUR 3,420 million (Q3 2021: 2,523 million), and comparable EBIT grew by 84% to EUR 779 million (424 million). As in the previous quarter, cash flows related to energy hedges affected operating cash flow significantly, resulting in an operating cash flow of EUR -201 million. Due to the nature of our hedging, this cash flow is expected to reverse in the future.

Our financial position remains strong, with cash funds and unused committed credit facilities totalling EUR 5.2 billion at the end of Q3. Net debt to EBITDA ratio was on a healthy level at 1.39. This gives us a solid base to navigate the unpredictable operating environment.

The quarter was clearly characterised by the energy crisis in Europe. Energy prices and volatility in the markets reached unprecedented levels. Market price signals are crucially important both for the energy system as a whole and for steering UPM’s energy production and consumption. We continuously optimise our electricity consumption towards hours when the prices and society’s energy needs are at their lowest, whereas we increase hydropower generation when energy needs are highest. Consequently, we help balance the electricity market, particularly in Finland. At the same time, all this is a significant source of value creation and competitive advantage both in our energy business and in our energy-consuming businesses.

UPM Energy achieved record earnings, benefiting from high market prices, optimised hydropower generation on the volatile markets, and the first notable generation volumes from the OL3 nuclear power plant unit.

UPM Fibres achieved an excellent quarterly result with continued solid demand and high prices for pulp. Our timber business, however, was affected by a visible slowdown in construction end-uses.

In UPM Communication Papers the excellent earnings level is a remarkable achievement. The business has faced a radical rise in input costs, particularly in energy and fibres, but they have been successfully offset by sales prices. The business has been very determined in adopting a more agile operating mode in the highly uncertain markets.

UPM Specialty Papers delivered all-time high quarterly results despite historically high-priced raw materials. The market for release liners and packaging papers remained strong. Asian fine paper markets continued to be challenging.

Favourable market conditions continued for UPM Raflatac. Customer demand for labels remained good, and the business performed extremely well. The acquisition of AMC AG in Germany was completed in September, accelerating growth and widening the product portfolio.

UPM Plywood had a good quarter despite slowing demand in construction end-uses. Sales prices increased for most products.

In Other operations, UPM Biofuels achieved record production and profitability in the strong markets for renewable biofuels. Our strategy based on proprietary technology and UPM’s integrated feedstocks, supplying highly sustainable renewable fuels is truly delivering results.

Our pulp mill in Paso de los Toros, Uruguay, is expected to begin commercial production in Q1 2023 growing our pulp business by more than 50%. A significant milestone in the project was reached when the new pulp terminal in the port of Montevideo was inaugurated in October. Direct connections from the new pulp mill to the global markets play a key role in the competitiveness of our pulp business.

The testing period for the OL3 nuclear power plant unit continues. Once in commercial production, it will grow our energy business by almost 50%, providing much-needed emission-free electricity to the markets.

Our biochemicals refinery project in Leuna, Germany, is proceeding as planned. We are opening a new growth business for UPM, providing more sustainable solutions to replace fossil-based materials in numerous end-uses. The keen customer interest in our innovative biochemicals products is inspiring. Basic engineering continues for the potential biofuels refinery in Rotterdam, the Netherlands.

During the quarter, UPM received its all-time high score from EcoVadis, the leading rating agency for supply chain sustainability, and was yet again recognised on Platinum level. Only one percent of the 90,000 companies assessed receive the Platinum score. Sustainability is at the heart of UPM’s Biofore strategy focused on providing the world with sustainable, renewable materials for various end-uses and competitive zero-carbon electricity.

Looking ahead, the uncertainties in the business environment continue to be numerous, but UPM is well prepared to face them with high-performing businesses, an agile operating model and a strong balance sheet. In addition, our growth projects are nearing their start up phases, adding significant new earnings in the future. This year, we expect our annual earnings to reach new record highs.”

Outlook for 2022

UPM’s comparable EBIT is expected to increase in 2022 from 2021. Following the record strong Q3 2022 results, UPM’s financial performance is expected to continue above last year’s level.

Significant uncertainties remain in the outlook, related to the war in Ukraine, the remaining effects of the pandemic, growth in the European and global economy, energy prices, availability and related regulation in Europe, the start-up of the OL3 power plant unit, and the tight raw material and logistics markets.

Sales prices and variable costs are expected to be higher in H2 2022 than in H1 2022 in most of UPM businesses. UPM will continue to manage margins with product pricing, by optimising its product and market mix, through efficient use of assets as well as by taking measures to improve variable and fixed cost efficiency.

You might also be interested in


 

Selected Topnews from the Paper Industry