UPM CEO Says Second Quarter Paper Volumes Off, Pulp Deliveries Strong

Aug. 6, 2013 - UPM's CEO Jussi Pesonen made the following comments about the company's second quarter 2013 financial results and the markets it serves:

"The second quarter was in line with our expectations: growth businesses continued to perform well, whereas Paper was impacted by lower delivery volumes and prices in Europe. Our operating profit excluding special items was EUR 138 million (128 million). Operating cash flow was lower than Q2 last year due to a temporary increase in working capital.

"Our Pulp business experienced a strong quarter, with good delivery volumes and increased prices. In Label, our growth actions resulted in increased volumes, more than offsetting the increased fixed costs caused by expanded operations. In Energy, profitability continued to be strong, despite being impacted by lower hydropower volumes. Plywood and Timber continued on a positive track despite the challenges of European markets.

"Paper experienced what we believe will prove to be the weakest quarter in 2013. Profitability continued on a good level in our Chinese and speciality paper operations, but sales margins in our European graphic paper business as well as export business were significantly lower than last year. In Q2, our Paper business also suffered a significant negative impact from unrealised energy hedges, especially when compared with Q1 2013.

"The implementation of the fixed cost savings measures and capacity closures announced in January 2013 are on schedule. The announced capacity closures were concluded in Rauma, Finland and Ettringen, Germany, by the end of April. At this point, employee negotiations have been concluded in all countries except for France, where they started in July. By the end of Q2, 40% of the annualised cost savings had materialised. Along with other cost savings, this offsets the earnings impact from lower paper deliveries, but could not compensate for the lower sales margins.

"It is clear that we need to take action to improve our performance and make sure that the company continues to transform. In Label we introduced business-specific efficiency improvement measures in July," Pesonen concludes.

Outlook for 2013
Economic growth in Europe is expected to remain very low in the latter part of 2013. This will continue to have a negative impact on the European graphic paper markets in particular. Growth market economies are expected to fare better, which is supportive for the global pulp and label materials markets as well as paper markets in Asia and wood products markets outside Europe. The current hydrological situation in the Nordic countries is slightly weaker than the long-term average. The forward electricity prices in Finland for the rest of 2013 are slightly lower than the realised market prices in H1 2013.

In H2 2013 compared with H1 2013, the Paper business area is expected to benefit from lower costs, driven partly by the on-going cost reduction measures, and seasonally stronger demand. Pulp business area will be impacted by annual maintenance stops in three of the four pulp mills.

Capital expenditure for 2013 is forecast to be approximately EUR 400 million.