UPM Swings to Fourth Quarter 2013 Profit

"The last quarter of 2013 was a satisfactory conclusion to a year which started off with a brisk headwind." – Jussi Pesonen, President and CEO, UPM.

Jan. 30, 2014 - UPM today reported results from its fourth quarter 2013 (compared to 4Q 2012). Sales for Q4 2013 were EUR 2,588 million, 3% lower than the EUR 2,657 million in Q4 2012. Sales decreased due to a reduction in paper deliveries and prices.

EBITDA was EUR 302 million, 11.7% of sales (317 million, 11.9% of sales). UPM Biorefining and UPM Plywood showed improvements in EBITDA mainly due to higher deliveries. UPM Energy reported lower EBITDA mainly due to lower hydropower volumes. UPM Paper Asia showed a decrease in EBITDA mainly due to adverse development in prices and exchange rates. UPM Paper ENA achieved the same EBITDA level as in the previous year, as lower variable and fixed costs offset the impact of lower paper prices and deliveries.

The Group's fixed costs were EUR 39 million lower than in the previous year.

Operating profit excluding special items was EUR 207 million, 8.0% of sales (146 million, 5.5%). The improvement in operating profit excluding special items came mainly from lower depreciation. Depreciation totalled EUR 131 million (1,983 million), and excluding special items EUR 132 million (202 million).

Reported operating profit was EUR 134 million, 5.2% of sales (loss of EUR 1,659 million). Operating profit includes net charges of EUR 73 million as special items. UPM booked charges of EUR 25 million related to the restructuring of the UPM Docelles mill in France. Other restructuring measures under UPM's profit improvement programme resulted into net restructuring charges of EUR 8 million. UPM booked a EUR 40 million write-down of receivables due to the Finnish Customs' decision to dismiss UPM's application for the statutory refund of energy taxes for the year 2012. UPM has appealed against the decision of the authorities.

The increase in the fair value of biological assets net of wood harvested was EUR 37 million (32 million).

Profit before tax was EUR 115 million (loss of EUR 1,690 million) and excluding special items EUR 188 million (123 million).

Net interest and other finance costs were EUR 19 million (31 million). Exchange rate and fair value gains and losses were EUR 0 million (loss of EUR 2 million).

Income taxes were EUR 79 million (204 million positive). The net impact of special items in income taxes was EUR 31 million negative (222 million positive), including charges of EUR 120 million related to a change in recoverability of deferred tax assets in Canada and income of EUR 76 million related to the corporate income tax rate change from 24.5% to 20.0% in Finland.

Profit for Q4 2013 was EUR 36 million (loss of EUR 1,486 million) and earnings per share were EUR 0.06 (-2.83). Earnings per share excluding special items were EUR 0.27 (0.20).

CEO COMMENTS

Jussi Pesonen, UPM's President and CEO, said, "The last quarter of 2013 was a satisfactory conclusion to a year which started off with a brisk headwind. In Q4 we achieved our best quarterly business performance in 2013. Part of this was due to seasonal factors, but a significant part comes from the wide range of improvement efforts we made throughout the year. Operating profit excluding special items was EUR 207 million (146 million). Due to strong operating cash flow we were able to reduce our net debt by EUR 261 million during Q4.

We are very pleased that UPM Biorefining, UPM Plywood and UPM Paper ENA (Europe and North America) were able to achieve a significant improvement in their financial performance with proactive internal measures.

Many pulp mills in the Biorefining business area were able to break their production records last year which boosted our pulp volumes. The granted permission to increase pulp production in Uruguay also positively impacted the result of the final quarter in 2013.

Plywood performance has improved consistently, and in Q4 achieved its best quarter since 2008. In Plywood, both the sales strategy as well as the production efficiency have been revised with excellent results.

In Paper ENA decreasing volumes and prices as well as unfavorable currencies were sources of serious headwind throughout the year and called for strong improvement actions. We responded with heavy cost savings both in the business and in the supporting functions. In Q4 Paper ENA managed to restore its profitability to the level of the previous year. It is fair to say that at the end of the year the business has a significantly more competitive cost structure than in early 2013.

UPM Energy suffered from mild weather and lower hydropower volumes in Q4 but was nevertheless able to maintain unchanged average electricity prices. In UPM Raflatac the sales development was positive, particularly in the growth markets. Despite challenging currency development in Asia, the performance of UPM Paper Asia was satisfactory.

We made good progress with our Biofore strategy in 2013. A key milestone was the implementation of the new business structure in November. The new organisation has started off well and we expect the new structure to sharpen our operational focus further in each business.

Simultaneously with the new structure we announced a short term profitability improvement programme targeting EUR 200 million cost savings by the end of 2014. Implementation of the programme has proceeded fast and in Q4 we had achieved 48% of the targeted savings.

I’m proud of the change readiness that UPM’ers have shown in the face of these changes. This gives us confidence in proceeding further with our profitability and growth initiatives. Over the coming three years, we have set ourselves clear targets for our growth initiatives in biofuels, woodfree speciality papers in China, label materials and pulp production. In parallel with this process we also seek to simplify our business portfolio. Our goal is to enhance the value of UPM businesses,” Pesonen concluded.

OUTLOOK FOR 2014

Growth in the European economy is expected to remain low in 2014, but improve from last year. Growth in the US and in the developing economies is expected to continue to outperform Europe.

This environment is expected to be supportive for the global pulp and label materials demand, as well as paper demand in Asia. The slight improvement in the European economy may moderate the negative demand development seen in the European graphic paper market in the past two years and stimulate

European demand for wood products. The current hydrological situation in Finland is close to the long-term average level, and the forward electricity prices in Finland for H1 2014 are somewhat lower than the realised market prices in H1 2013.

In H1 2014, UPM’s performance is expected to be underpinned by a stable overall outlook for UPM Energy, UPM Raflatac, UPM Paper Asia and UPM Plywood, as compared to H2 2013.

Profitability in UPM Paper ENA is expected to improve due to the on-going cost reduction measures. In H1 2014 compared to H2 2013 however, performance will be negatively impacted by lower delivery volumes, including seasonal factors.

UPM Biorefining is starting the year in a stable market. Capacity additions in the global pulp market may impact the pulp market balance unfavourably during 2014, depending on the timing of the new start-ups.

UPM’s structure consists of the following business areas: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Paper Asia, UPM Paper ENA (Europe and North America) and UPM Plywood. To learn more, please visit: www.upm.com

SOURCE: UPM