UPM CEO Reports Excellent Third Quarter 2018 Results on Healthy Demand, Pricing, Sales
""The third quarter was excellent and sets a new benchmark for our performance. Our customer demand continued to be healthy and we were able to increase sales prices in nearly all businesses." – Jussi Pesonen, President and CEO, UPM.
Oct 24, 2018 - UPM's President and CEO, Jussi Pesonen, reported strong third quarter performance with higher sales, coupled with improved pricing and healthy demand.
Mr. Pesonen's Q3 2018 comments follow:
"The third quarter was excellent and sets a new benchmark for our performance. Our customer demand continued to be healthy and we were able to increase sales prices in nearly all businesses. In five of our six business areas, the price increases were sufficient to cover the impact of higher input costs. Our business model continues to deliver results.
Our sales grew by 6% and comparable EBIT increased by 20% to EUR 420 million. Our comparable EBIT margin reached 15.9% illustrating well our current performance level compared to the first half of the year. Operating cash flow was strong and our balance sheet was practically debt-free at the end of the quarter.
The biggest improver was UPM Biorefining, which achieved record quarterly earnings. Pulp, Biofuels and Timber all achieved higher prices. Biofuels reached a new level of production after the turnaround shutdown in Q2. However, our pulp deliveries were held back by temporary production issues at the Fray Bentos mill, where thunderstorms caused four production shutdowns during the quarter.
UPM Communication Papers overcame higher input costs and lower deliveries with higher pricing and reported good, stable earnings. Unfortunate turbine damage and downtime at the Plattling mill caused extra costs, particularly as electricity prices were high. UPM Energy benefitted from the higher electricity prices, and increased its earnings even though dry weather limited our hydropower generation.
UPM Raflatac and UPM Plywood performed steadily. They were able to raise sales prices and offset the cost increases. Both also encountered some headwind from unfavourable currencies.
UPM Specialty Papers experienced a negative earnings development despite solid demand. The main reason for this was the continued increase in pulp costs. In label papers we were able to raise prices, but not sufficiently to fully compensate for the increase in pulp costs. In fine papers, prices decreased due to additional market supply in China.
Our transformative prospects provide us with unique and exciting opportunities for significant long-term earnings growth. In Uruguay, preparations for the potential new world-class pulp mill are proceeding. The rail tendering process is in its final stages and the port concession tendering has started. UPM has submitted the Environmental and Social Impact Study for the mill to the authorities. Engaging in active dialogue with local stakeholders has been an important part of the process. Next we expect tangible progress in infrastructure construction and labour protocols.
Preparations are also ongoing in our attractive biomolecular businesses. In UPM Biochemicals, we are continuing the basic engineering work for the potential first industrial-scale biochemical refinery in Germany. In UPM Biofuels, we completed the Environmental Impact Assessment for a possible Kotka Biorefinery in Finland and submitted it to the authorities for their final conclusions.
Overall, UPM is in great shape and ready to grasp the limitless opportunities that bioeconomy offers for value creation and business growth. We believe that growing sustainable businesses can offer solutions to the global challenges such as resource scarcity and climate change. During the quarter, our responsible business conduct as well as our efforts to deliver responsible solutions were recognized by United Nations Global Compact and Dow Jones Sustainability Indices. Our innovations create value and business opportunities for an era when the world is no longer dependent on fossils."
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 costs, compared with 2017.
Through the renewing of the bio and forest industries, UPM is building a sustainable future across six business areas: UPM Biorefining, UPM Energy, UPM Raflatac, UPM Specialty Papers, UPM Paper ENA and UPM Plywood. To learn more, please visit: www.upm.com