UPM Interim Report Q3 2023

Jussi Pesonen, President and CEO, UPM

Financial News
  • Smaller Small Medium Big Bigger
  • Default Helvetica Segoe Georgia Times

UPM delivers improved results from previous quarter and continues to build long-term growth

Q3 2023 highlights                                

  • Sales decreased by 24% to EUR 2,584 million (3,420 million in Q3 2022)
  • Comparable EBIT decreased by 72% to EUR 220 million, 8.5% of sales (779 million, 22.8%)
  • Operating cash flow was EUR 641 million (-201 million), supported by cash inflow from working capital and energy hedges
  • Net debt decreased to EUR 2,363 million (3,133 million) and the net debt to EBITDA ratio was 1.27 (1.39)
  • Pulp and electricity sales prices significantly lower than last year, impacting UPM Fibres and UPM Energy. Successful margin management in other business areas
  • Demand for many of UPM's products started to gradually recover
  • UPM Paso de los Toros pulp mill and the OL3 nuclear power plant unit contributed significantly to UPM's deliveries
  • UPM Communication Papers to permanently close its Plattling mill in Germany
  • UPM received platinum in the EcoVadis responsibility assessment with a high industry score
  • UPM joined the UN Global Compact Forward Faster Initiative

Q1–Q3 2023 highlights

  • Sales decreased by 7% to EUR 7,929 million (8,489 million in Q1–Q3 2022)
  • Comparable EBIT decreased by 52% to EUR 689 million (1,443 million), and was 8.7% (17.0%) of sales
  • Operating cash flow was EUR 1,814 million (-1,068 million), supported by cash inflow from energy hedges
  • Cash funds and unused committed credit facilities totalled EUR 6.5 billion at the end of Q3 2023
  • UPM Paso de los Toros pulp mill in Uruguay started production in Q2 2023 and is ramping up according to the plan
  • The OL3 nuclear power plant unit began regular commercial electricity production in Q2 2023
  • UPM Leuna biochemicals refinery project is progressing well according to the updated schedule
  • Permanent closures of PM6 at UPM Schongau, Germany and PM4 at UPM Steyrermühl, Austria
  • UPM pays the dividend of EUR 1.50 per share for 2022 in two instalments. The first instalment of EUR 0.75 per share was paid on 21 April 2023 and the second instalment of EUR 0.75 per share will be paid on 2 November 2023

Key Figures

upm 24oct23

UPM presents certain measures of performance, financial position and cash flows, which are alternative performance measures in accordance with the guidance issued by the European Securities and Markets Authority (ESMA). The definitions of alternative performance measures are presented in » UPM Annual Report 2022

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

“In Q3, our comparable EBIT nearly doubled in comparison to the previous quarter. Demand for many of our products began to gradually recover. Our margin management continued to be successful as variable costs decreased. At the same time, our strategic investments contributed significantly to our deliveries.

This year has seen an exceptional business environment, with a downcycle well beyond normal in our industry, especially in Europe. Geopolitical uncertainty, low economic activity and persistent inflation have impacted the underlying demand for consumer products. Market deliveries of our products have been held back further by unprecedented destocking in most of the product value chains. While we believe the destocking is now phasing out, the operating environment remains uncertain, impacting customer behaviour.

In these unusual circumstances, we have focused on margin management, and implemented a range of timely cost and capacity reduction measures to maintain good performance. Meanwhile, we have been ramping up our strategic growth projects, and continue to build the foundation for future growth. In Q3, these activities started to pay off. We are well positioned to deal with a market demand recovery, and to leverage the positive long-term drivers with our growth projects.

In comparison to last year, our Q3 sales decreased by 24% to EUR 2,584 million (3,420 million in Q3 2022), and comparable EBIT came down by 72% to EUR 220 million, or 8.5% of sales (779 million, 22.8%). Q3 of last year was clearly the strongest quarter in UPM’s history, with almost all businesses reaching a quarterly record in comparable EBIT, and energy and pulp prices, in particular, reaching new highs.

Our Q3 operating cash flow was very strong at EUR 641 million, supported by the release of working capital and cash inflow from energy hedges. Our net debt decreased from comparison periods and was EUR 2,363 million at the end of the quarter. Our financial standing is strong.

In UPM Fibres, the ramp-up of UPM Paso de los Toros in Uruguay progressed according to plan, and the state-of-the-art pulp mill was EBITDA positive in Q3. Our pulp deliveries grew by 54% compared to last year. Demand for pulp was good during the quarter and market prices started to recover from the bottom levels. However, UPM Fibres’ results remained unsatisfactory in Q3 due to bottom-of-the-cycle pulp prices, weak timber markets and high wood costs in Finland.

UPM Communication Papers achieved solid results again despite continuously low demand. Margins were successfully protected by implementing cost containment measures and adjusting capacity to demand. During the quarter we announced plans to permanently close UPM Plattling in Germany, reducing the uncoated and coated publication paper capacity by 595,000 tonnes in Europe. The negotiations were completed last week and production will be ceased in November 2023.

In UPM Raflatac, deliveries for self-adhesive label materials continued to increase gradually from the previous quarter, as did deliveries of UPM Specialty Papers’ label, release base and packaging papers. The market sentiment improved further in Asia, which was also visible in fine paper deliveries. The impact of lower sales prices was offset by lower input costs and successful margin management in both businesses.

In UPM Energy, the OL3 nuclear power plant unit is now in regular commercial electricity production, increasing our CO2- free electricity generation significantly. Weak industrial activity in Europe has resulted in unusually low electricity consumption, which combined with wet Q3 in the Nordics contributed to low electricity prices in Finland. UPM Energy’s results improved slightly from the previous quarter but were clearly lower than during the energy crisis last year.

In UPM Plywood demand for spruce plywood and veneer was weak as building and construction activity slowed down. Demand for birch plywood was good.

In Other operations, UPM Biofuels delivered good results after the Lappeenranta refinery’s turnaround maintenance shutdown in the previous quarter. In Rotterdam, the commercial and basic engineering studies of the possible biofuel refinery continue.

In UPM Biochemicals, the construction of the first of its kind biorefinery in Leuna, Germany, is progressing well and according to previously revised plans. All major structures have been erected and gradual commissioning of the refinery will begin later this year. In Q3, UPM Biochemicals acquired the German-based SunCoal Industries with its unique technology portfolio. Commercial interest for bio-based MEG and renewable functional fillers remained strong, and we announced first large-scale sales contracts with Dongsung and Brenntag.

Our steadfast commitment to sustainability was recognised with the highest possible platinum score in the EcoVadis responsibility assessment. During the quarter we also joined the UN Global Compact Forward Faster initiative which aims to accelerate the progress of UN’s Sustainable Development Goals. UPM’s Faster Forward commitment is related to gender equality, living wages and the ambitious net-zero emissions target.

All in all, this year has been challenging as the world continues to adjust to new economic and geopolitical realities. I am proud that even in these circumstances UPM’s operating model delivers results and strong cash flows. Our long-term prospects are promising, too. In Uruguay, we now have a unique plantation-based business platform that offers further opportunities in various biomaterials. Another unique platform with great growth potential is being built in our biochemicals and biofuels businesses.

I am excited that we are making progress both in our financial performance and transformative growth. Together, we continue to create a future beyond fossils.”

Outlook for 2023

Full-year 2023 comparable EBIT is expected to decrease from 2022. UPM’s comparable EBIT in H2 2023 is expected to be on similar level or increase compared to H1 2023.

UPM’s delivery volumes are expected to increase in H2 2023 from H1 2023. Deliveries were unusually low during H1 2023, held back by significant destocking in the various product value chains. Destocking is expected to gradually phase out during H2 2023, enabling UPM’s deliveries to recover towards the underlying end-use demand. The production ramp-up of the UPM Paso de los Toros pulp mill and the OL3 nuclear power plant unit will add to UPM’s deliveries in H2 2023.

Chemical pulp and electricity market prices were historically high during H2 2022 and declined rapidly to estimated bottom-of-the-cycle levels during H1 2023. H2 2023 started with low pulp and electricity prices, impacting these commodity price-driven businesses. In the other businesses UPM continues to manage margins.

Variable costs are expected to decrease in H2 2023 compared to H1 2023. In addition, UPM is implementing measures to reduce fixed and variable costs.

Invitation to UPM’s webcast and press conference on Q3 2023 Interim report

A webcast and a conference call for analysts and investors in English begins at 13:15 EEST. The interim report will be presented by the President and CEO Jussi Pesonen and CFO Tapio Korpeinen. Participants can view the webcast online through this link, but those who wish to ask questions from the management must register for the teleconference.

To ask questions, join the teleconference by registering here. After the registration you will be provided with phone numbers, a user ID and a conference ID to access the conference. To ask a question, press *5 on your telephone keypad to enter the queue.

The webcast will be available at www.upm.com for 12 months after the call.

Later in the afternoon, at 14:45 EEST, President and CEO Jussi Pesonen will present the quarterly results in a press conference at the Group head office and online. The press conference will be held in Finnish. Those wishing to attend this event, please contact the UPM media desk.


It should be noted that certain statements herein, which are not historical facts, including, without limitation, those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by "believes", "expects", "anticipates", "foresees", or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein including the availability and cost of production inputs, continued success of product development, acceptance of new products or services by the Group's targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group's patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group's products and the pricing pressures thereto, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group's principal geographic markets or fluctuations in exchange and interest rates. The main earnings sensitivities and the group’s cost structure are presented on pages 173–174 of the Annual Report 2022. Risks and opportunities are discussed on pages 32–33, and risks and risk management are presented on pages 132–137.

We deliver renewable and responsible solutions and innovate for a future beyond fossils across six business areas: UPM Fibres, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Communication Papers and UPM Plywood. As the industry leader in responsibility, we are committed to the UN Business Ambition for 1.5°C and the science-based targets to mitigate climate change. We employ 17,200 people worldwide and our annual sales are approximately EUR 11,7 billion. Our shares are listed on Nasdaq Helsinki Ltd. UPM Biofore – Beyond fossils. www.upm.com

Source: UPM