Market turn and efficiency improvement boost UPM’s earnings

UPM-Kymmene Corporation, a Finnish manufacturer of paper, wood and cellulose, published on its website the interim report for the first quarter of 2021. According to the company, the first quarter of 2021 has started off with healthy demand for UPM’s products.

Pulp demand continued to be good and pulp prices increased rapidly. Strong markets continued for labelling materials, specialty papers and energy.

UPM’s President and CEO, Jussi Pesonen, commented on Q1 results and said “UPM entered the year well prepared for the turn in the markets, which is also evident in our first quarter results. We took timely actions last year, and now that the world economy is recovering, there is a good momentum going forward.

“The year began with good demand for almost all UPM products. Pulp prices increased rapidly, while UPM Raflatac, UPM Specialty Papers and UPM Energy continued to perform strongly. In addition, UPM Communications Papers achieved satisfactory results in the difficult market environment. Our earnings recovered to pre-pandemic levels, and our transformative growth projects continued on schedule and on budget. All in all, a good start to the year.

“Our sales decreased by 2% to EUR 2,234 million, and comparable EBIT reached EUR 279 million, in line with the corresponding quarter of last year and higher than the three preceding quarters. Operating cash flow increased to EUR 217 million. Our financial position remains strong with a net debt of EUR 83 million and cash funds and unused committed credit facilities totalling EUR 3.2 billion at the end of Q1 2021.

“The biggest improvement in earnings came from UPM Biorefining. Demand for pulp, timber and biofuels was good and pulp prices increased faster than expected. At the same time, strong markets continued for labelling materials and specialty papers. Demand trends in consumer behaviour, e-commerce and retail, accelerated by the pandemic, carried UPM Raflatac and UPM Specialty Papers to excellent results again. For UPM Raflatac, the quarter was its best-ever.”

Pesonen also commented on UPM Communication Papers that achieved achieved a clearly positive comparable EBIT due to efficient operations, satisfactory asset utilisation rates and commercial success. Profitability of UPM Energy continued on an excellent level, said the CEO, and UPM Plywood delivered steady results.

“In the recovering world economy, China is leading the development. The pick-up in business activity is driving demand for many of our products, but it is simultaneously pushing commodity and raw material prices higher. We are aiming to capture opportunities in the recovering markets by efficient margin management and optimising our product and market mix. At the same time, we will continue to take measures to offset cost pressures and to maintain cost efficiency in all our businesses and functions. I believe UPM’s operating model will again help us in steering the businesses in the rapidly changing market circumstances.

“We are in a very exciting and intensive phase in UPM’s transformation. I am proud of both of our strategic growth projects, which proceed on schedule and on budget in these exceptional times. In Uruguay, we have now 4,000 workers on our construction sites in Paso de los Toros and Montevideo, and the number will rise to 6,000 later this year. UPM has implemented strict COVID-19 prevention measures to protect workers and to ensure the progress of this strategic project. In Leuna, Germany our biochemicals investment is progressing at full speed in terms of construction, business preparations and concrete customer cases.

“In January we announced the start of the basic engineering phase of a potential next-generation biorefinery with an annual capacity of 500,000 tonnes of renewable fuels. As primary locations, we will review Kotka, Finland and Rotterdam, the Netherlands. This basic engineering phase is estimated to last at least 12 months before our standard procedure of analysing and preparing an investment decision can be initiated.

“Our ambition is high when we develop business opportunities related to mitigating climate change. We strive to innovate climate-positive products that allow our customers and end-users to make more sustainable choices. Our growth plans in biochemicals and biofuels are prominent examples of this, taking place right now. Furthermore, we have ambitious long-term climate targets, including significant reduction of our CO2 emissions. During the first quarter, we joined the Climate Pledge, aiming to reach the Paris Agreement targets 10 years in advance. We have also committed to the UN Global Compact Business Ambition for 1.5°C and science-based measures to mitigate climate change.

“We are continuing to demonstrate our aim for sustainable growth and long-term value creation in our actions. Our purpose is to create a future beyond fossils.”

OUTLOOK FOR 2021

The global economy is expected to start recovering in 2021 from the deep downturn experienced in 2020. World regions will progress at different pace, and China is leading 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.

Pulp demand has continued to be good and pulp prices have increased rapidly. At the same time, strong markets have continued for labelling materials, specialty papers and energy. Demand and pricing for communication papers have materialised as expected, decreasing from the comparison periods.

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 H1 2021 compared with H1 2020, and in the full year 2021 compared with 2020.

To read the complete press release, visit UPM’s website.