upm interim report q3 2018 · +45k m3 in q3 2019, russia –jämsänkoski release liner expansion...
TRANSCRIPT
Jussi Pesonen
President and CEO
24 October 2018
UPM Interim Report
Q3 2018
| © UPM – The Biofore Company2
Q3 2018: strong quarter sets a new benchmark for UPM’s performance
• Sales grew by 6% to EUR 2,650 million
(2,493m)
• Comparable EBIT increased by 20% to
EUR 420m (351m)
• Sales prices increased in all business areas,
outweighing the impact of higher input costs
• Temporary operational issues in UPM
Communication Papers and UPM Biorefining
had a EUR 30 million negative impact
• Operating cash flow was EUR 434m (486m),
net debt decreased to EUR 4m (623m) 0
50
100
150
200
250
300
350
400
450
EURm
Comparable EBIT
420
351
| © UPM – The Biofore Company3
Q3 2018: Sales prices increased in all business areas, outweighing the impact of higher input costs
UPM PLYWOOD
• Price increases offset the higher variable costs
• Good demand, deliveries -2%
UPM COMMUNICATION PAPERS
• Average paper price +10%, more than
offset the higher variable costs
• Tight market sentiment, deliveries -8%
• Turbine damage in UPM Plattling
UPM RAFLATAC
• Price increases more than offset the
higher variable costs
• Stable demand growth, deliveries -3%
UPM ENERGY• Average electricity sales price +19%
• Electricity deliveries +2%
• Dry weather limited hydropower generation
UPM BIOREFINING
• Average pulp prices in euros +27%
• Pulp deliveries -2%, held back by temporary
production issues at UPM Fray Bentos
• New production level in Biofuels
UPM SPECIALTY PAPERS
• Price increases offset only part of the variable
costs increases
• Solid demand, deliveries +1%
| © UPM – The Biofore Company
Comparable EBIT by business area
4
0
2,5
5
7,5
10
12,5
15
0
10
20
30
40
50
60
0
5
10
15
20
25
30
35
0
40
80
120
160
200
240
280
0
2,5
5
7,5
10
12,5
15
0
10
20
30
40
50
60
-2,5
0
2,5
5
7,5
10
12,5
15
-20
0
20
40
60
80
100
120
EURm % of sales
UPM Specialty Papers
EURm % of sales
UPM Communication Papers
EURm % of sales
EURm % of sales
UPM Raflatac
EURm % of salesEURm % of salesUPM Biorefining
0
10
20
30
40
50
60
0
10
20
30
40
50
60UPM Energy
0
3
6
9
12
15
18
0
10
20
30
40
50
60UPM Plywood
| © UPM – The Biofore Company
0
100
200
300
400
500
600
700
Q3/17 Q3/18
Comparable EBIT in Q3 2018 vs. Q3 2017
Raflatac
Specialty
PapersOther
operations
and
eliminations
Energy
BiorefiningCommunication
Papers
Plywood
EURm
5
Record quarter in Biorefining, improvement
in Energy and Communication Papers.
Specialty Papers weaker.
Prices increased in all businesses, input costs higher
Deliveries impacted by temporary production issues
0
100
200
300
400
500
600
700
Q3/17 Q3/18
EURm
Prices
Variable
costs
Fixed
costs
Deliveries
35114.1%
42015.9%
Currency,
net
impact
Depr.,
forests,plantations
35114.1%
42015.9%
| © UPM – The Biofore Company6
Strong cash flow and balance sheet
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
0
500
1 000
1 500
2 000
2 500
3 000
3 500
2013 2014 2015 2016 2017 Q3/18
Net debt / EBITDA(trailing12 months)
Net debt
Net debt / EBITDA
0
200
400
600
800
1 000
1 200
1 400
1 600
1 800
2013 2014 2015 2016 2017 LTM
Operating cash flow Net debt
4
1,378
Net debtEURm
Free cash flow
Operating cash flow
EURm
LTM
Q3/18
operating
cash flow
EUR 434m
Working
capital
increased by
EUR 75m
| © UPM – The Biofore Company7
Outlook for 2018 unchanged
• UPM’s comparable EBIT is expected to
continue growing in 2018 compared with 2017.
H2 2018 comparable EBIT is expected to be
significantly higher compared with H1 2018.
• The fundamentals for UPM businesses in 2018
are favourable. Sales price increases in 2018
are expected to outweigh the increase in
variable cost, compared with 2017.
| © UPM – The Biofore Company8
Focused growth projects to develop market position while maintaining and growing earnings
• Completed –Raflatac expansion
in Q4 2017, Poland
–Kymi pulp mill expansion+170kt in Q4 2017, Finland
–Kaukas pulp mill expansion+30kt in Q2 2018, Finland
• Construction stage–Raflatac speciality label expansion
in Q4 2018, Finland
–Chudovo plywood mill expansion+45k m3 in Q3 2019, Russia
–Jämsänkoski release liner expansion+40kt in Q4 2018, Finland
–Nordland PM2 conversion to release liner +110kt in Q4 2019, Germany
–Changshu release liner expansion+40kt in Q1 2020, China
| © UPM – The Biofore Company9
Transformative prospects with unique and exciting opportunities for significant long-term earnings growth
• Possible new 2mt pulp mill, Uruguay
–Second preparation phase proceeding:
The rail tendering process in final stages,
port concession tendering started.
Environmental and social impact study for
the mill submitted.
• Molecular bioproducts, possible
biorefineries
–Basic engineering work continues
regarding a potential 150kt biochemicals
refinery, Germany
–Exploring next steps in biofuels,
environmental impact study submitted for
a potential 500kt biorefinery, Finland
Spearheads for growth
10 | © UPM – The Biofore Company
High value fibre
Specialty packaging materials
Raflatac Specialty papers
Communication
papersEnergy
Biofuels Biochemicals
Molecular bioproducts
Plywood
PulpForests
| © UPM
Inspired by the
limitless opportunities
of bioeconomy
Delivering renewable
and responsible
solutions
Innovating for
a future beyond
fossils
11 | © UPM Biofore – Beyond Fossils
| © UPM – The Biofore Company
Summary – Q3 2018 set a new benchmark for UPM’s performance
• Q3 sales grew by 6% and comparable EBIT by 20%
• Comparable EBIT margin reached 15.9%, illustrating well the current
performance level compared with H1 2018
• Sales prices increased in all businesses, outweighing the impact of higher
input costs – temporary operational issues had a negative impact
• Preparations continue for UPM’s transformative prospects with unique
opportunities for significant long-term earnings growth
12
| © UPM – The Biofore Company
0,0
0,5
1,0
1,5
2,0
2,5
3,0
0
750
1 500
2 250
3 000
3 750
4 500
2013 2014 2015 2016 2017 Q3/18
Net debtEURm
Net debt/EBITDA
(x)
Net debt and leverage
Policy: ≤ 2x
14
Group financial performance
0
200
400
600
800
1 000
1 200
1 400
1 600
2013 2014 2015 2016 2017 LTM
EURm Comparable EBIT
0
2
4
6
8
10
12
14
2013 2014 2015 2016 2017 LTM
% Comparable ROE
Target: 10%Target: EBIT growth
LTM
| © UPM – The Biofore Company
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
Business area long-term return targets apply over investment and business cycles
15
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE % *)
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
*) shareholdings in UPM Energy
valued at fair valueLong-term return target
UPM
Specialty Papers
UPM
Communication Papers
UPM
PlywoodUPM
Raflatac
UPM
Energy
UPM
Biorefining
FCF/
CE %
| © UPM – The Biofore Company16
Maintenance shutdowns in 2017 and 2018
Maintenance shutdowns have an impact on
• Maintenance costs
• Production volumes
• Operational efficiency
Timing Unit
Q2 17 Pietarsaari pulp mill
Olkiluoto nuclear power plant
Q4 17 Kymi pulp mill
Q2 18 Fray Bentos pulp mill
Kaukas pulp mill
Lappeenranta biorefinery turnaround
Olkiluoto nuclear power plant
Q4 18 Pietarsaari pulp mill
Significant maintenance shutdowns
in 2017 and 2018
| © UPM – The Biofore Company
Low investment needs in existing assets allow growth projects with modest total capex
0
200
400
600
800
1 000
1 200
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E
Depreciation
EURm
Operational investments
Capital expenditure
Strategic investments
Uruguay
acquisition
Estimate
303
Myllykoski
acquisition
17
300
| © UPM – The Biofore Company18
5-year cumulative cash flow (2013–2017)– disciplined capital allocation in action
Industry-leading
balance sheet
Net debt /EBITDA
~ 0x
EUR 6.4bn
Deleveraging
Strong operating cash flow
Attractive dividend
Focused investments
EUR 1.9bn
EUR 2.6bn
EUR 1.9bn
| © UPM – The Biofore Company19
Illustrative capital allocation*) for next 5 years,assuming the Uruguay pulp mill investment
Industry-leading
balance sheet
Net debt /EBITDA
< 2x
Attractive dividend
EUR ~3–4bnPerformance focus
Strong cash flow
High return
investments
EUR ~3–4bn
Maintain headroom
*) This is not a forecast
| © UPM – The Biofore Company
Second preparation phase for the potential new pulp mill in Uruguay proceeding
20
• Labour protocols, regulation
• Investment regimes
• Regional planning and development
• Energy and complementary items
• Mill permitting, pre-engineering
• Rail permitting, tendering, start construction
• Port permitting, tendering, concession
• Roads
Phase ICompleted in Q4/17
Phase IIExpected to take 1.5-2 years
Phase III
Discussions with the
Government of Uruguay
Prerequisites for a possible
pulp mill investment
Investment project
Development of
infrastructure
Main items in preparation phase II:
Investment agreement signed in
Q4/17
Permitting
Pre-engineering
Development of
infrastructure
Necessary conditions
Potential UPM
investment decision
| © UPM – The Biofore Company21
UPM’s main currency exposures
• Key currency exposures USD, GBP and JPY
• Policy to hedge an average of 50% of the estimated net currency cash
flow for the next 12 months
Estimated annual foreign currency net cash flow, before hedging
USD GBP JPY Others
EURm 1,030 350 170 340
| © UPM – The Biofore Company22
0
100
200
300
400
500
600
700
800
2018
2019
2020
2021
2022
2023
2024-2
026
2027
2028
2029
2030
EUR million
0
100
200
300
400
500
600
700
800
2018
2019
2020
2021
2022
2023
2024-2
026
2027
2028
2029
2030
EUR million
Liquidity
Liquidity on 30 September 2018 was EUR 0.7bn
(cash and unused credit facilities)
bilateral committed credit facilities EUR 132 million for general financing purposes
Committed credit facilities
Maturity profile of outstanding debt Committed credit facilities’ maturities
Maturity profile and liquidity
| © UPM – The Biofore Company
300
400
500
600
700
800
900
1000
1100
1200
1300
USD/tonne
BHKP, Europe NBSK, Europe
BHKP, China NBSK, China
Chemical pulp market prices
23
UPM Biorefining
300
400
500
600
700
800
900
1000
1100
1200
EUR/tonne
BHKP, Europe, EUR NBSK, Europe, EUR
BHKP, China, EUR NBSK, China, EUR
Pulp market prices, USDPulp market prices, EUR
Sources: FOEX Indexes Ltd, ECB
| © UPM – The Biofore Company24
UPM Energy
profitability2013 2014 2015 2016 2017 9M/18
Comparable EBIT,
EURm186 202 181 116 91 91
% of sales 39.9 43.5 43.6 32.7 28.8 31.4
UPM Energy
Cost efficient generation enables robust profitability in challenging market environment
0
10
20
30
40
50
2013 2014 2015 2016 2017 2018
MWh Market electricity prices vs UPM sales price
Helsinki Front Year System Front Year UPM average sales price
| © UPM – The Biofore Company
400
500
600
700
800
900
1000
News SC LWC
WFC WFU
25
UPM Communication Papers
Graphic paper prices
EUR/t
EuropeUSD/t USD/t
ChinaNorth America
600
700
800
900
1000
1100
1200
1300
WFC r (100% chemical pulp)
Uncoated Woodfree Reels (100% chemicalpulp)
500
600
700
800
900
1000
1100
1200
News SC LWC
WFC WFU
Sources: PPI, RISI
| © UPM – The Biofore Company26
UPM Communication Papers
Paper price vs. cash cost of marginal cost producer
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
EUR/t
Cash cost of a marginal producer
Price
Sources: PPI, RISI, Pöyry