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Latest Content

Yet another strong performance compels a material earnings upgrade

  • 27 Jul 16

UPM-Kymmene’s Q2 results (barring the top-line) were ahead of consensus and AV expectations. While Paper ENA continued to suffer from the ire of weak prices (-2%) and volumes (-5.2%), lower pulp prices (-12%) and sombre energy market dynamics (prices and volumes down 13% and 5%, respectively) exacerbated the sales pressure (€2.4bn; -4% yoy). Although sequentially sales were flat due to volume support from Raflatac (labels), Paper Asia and Plywood. Despite the top-line vagaries, UPM’s profitability delivery remained strong. Adjusted EBIT came in at €251m (+34% yoy; -5.3% qoq). All divisions, with the exception of Biorefining (pulp) and Energy, witnessed meaningful improvements. These improvements were a combination of initiation of/pick-up in earnings contribution from the growth projects and strong delivery on (fixed and variable) cost savings. However, bottom-line gains mellowed (net profit of €198m; +24% yoy; -13% qoq) due to: 1/ lower gains from revaluation of biological assets; and 2/ higher income taxes. Cash flows remained healthy, both yoy and qoq. Reported OCFs came in at €434m (+34% yoy; +27% qoq). Even after the full-year dividends payments in Q2, UPM’s debt remained largely unchanged at €2.3bn. Management guides for profitability improvements to continue in H2 16 on the back of the incremental contribution of growth investments and the continuation of cost rationalisation.

Paper joins the party with pulp and labels

  • 28 Apr 16

UPM-Kymmene’s start to 2016 could not have been better with the profitability coming in materially ahead of the Street’s expectations. Although sales were a bit disappointing having declined 1.6% yoy (and 5% qoq) to €2.4bn as European paper volumes (down 2% yoy and 8.7% qoq) continued to sag, with sequential weakness being aggravated by lower pulp and energy prices, and seasonally lower label volumes. However, a material turnaround in the paper ENA and continuation of the good performance in pulp and labels (better margins) helped adjusted EBIT surge by 37% (and 15% qoq) to €265m – a record high. Paper ENA’s EBIT came in at €46m vs. €5m and €18m in Q1 15 and Q4 15, respectively, due to a combination of (fixed and variable) cost savings and the absence of unfavourable currency hedges (unlike the previous periods). Overall, a combination of cost efficiencies (across businesses) and the contributions from growth projects helped profitability gain momentum, after a subtle 2015. Net profit galloped 46% (and 18% qoq) to €227m (despite €29m of charges related to the closure of the Madison Paper Industries JV) and reported OCFs came in at €341m vs. €108m in Q1 15. Although OCF comps were skewed by a one-off working capital use of €147m in Q1 15 vs use of only €14m in Q1 16. UPM’s use of leverage continued to reduce, with net debt reaching another record low of €2.2bn (-8.9% qoq). On the day of the Q1 results release, the group also announced sale of its Schwedt newsprint mill (c.3% of capacities) in Germany to LEIPA group for a consideration of €70m – which is line with our NAV estimates.

Operating improvements continued despite languishing paper

  • 04 Feb 16

UPM-Kymmene ended 2015 on a high with its Q4 and 2015 results exceeding AV and consensus estimates. These results fructified in spite of paper (a key outperformer in 2014) failing to deliver in 2015. *Some top-line growth* Sales: Q4 – €2.6bn (+1.7% yoy; +1.7% qoq); 2015: €10.1bn (+2.7%; +1.5% ahead of AV estimates) Q4 sales were supported by solid growth in Biorefining (pulp; +21%) and Raflatac (labeling; +10%) where a materially weaker Euro (down 14% vs. USD) was the key driver, despite persistent weakness in paper volumes and prices, energy prices and plywood volumes. With feeble European paper being a top-line drag since 2013, UPM finally achieved top-line growth with trends similar to Q4 resonating throughout 2015. *Highest annual EBIT since 2006* Adjusted EBIT: Q4 – €209m (+5.6%; -3.2% qoq); 2015: €808m (+5.5%; +1.6% ahead of AV estimates) Cost optimisation has become an area of unwavered focus for UPM over the years, with the group achieving €41m and €150m of savings during Q4 and 2015, respectively, under the profit improvement programme. Although some of the gains were lost (€24m and €114m in Q4 and 2015) due to unfavourable currency hedges and higher Euro-denominated pulp prices (thereby increasing raw material costs), which primarily impacted the paper businesses. Even sequentially, barring some unexplained intersegment losses, performance across divisions remained robust – especially for the energy segment (+29%), which benefited from lower energy purchase costs. Attributable net profit: Q4 – €193m vs. €8m and €408m in Q4 14 and Q3 15, respectively; 2015: €916m (+79%; +6.8% ahead of AV estimates) Unlike Q4 14 – which was marred by €135m of paper asset impairments – Q4 15 was blemish-free. This was also in stark contrast with Stora Enso which has already announced €262m of impairments for Q4 15. In addition to the operating improvements and no hefty impairments, a one-time gain on forest assets (€265m in Q3 15) culminated into a staggering full-year net profit growth. Although further down in the statement of comprehensive income, €307m and €405m of losses were recognized in Q4 and 2015, respectively, on available-for-sale investments (primarily comprising the ill-fated TVO nuclear assets). *Balance sheet supported growth investments and dividends* Even though OCFs weakened a bit (-5.7%) to €1.2bn as last year’s working capital benefits reversed, a resilient balance sheet (net debt down 12% to record low levels of €2.4bn) helped UPM pursue its growth investments – with 2015 capex up 14% to €432m. Also, full-year dividend was increased by 7.1% to €0.75/share (+3.6% ahead of AV estimate). With most growth investments in place, management guides €350m capex for 2016.

Gains from forest revaluation add to the EBIT improvements

  • 29 Oct 15

In continuation with its Q2 performance, UPM-Kymmene maintained its business momentum in Q3 15. Sales were up 4.8% yoy (-0.7% qoq) to €2.5bn, driven by material benefits from a depreciating euro (down 19% vs. the USD) impacting the Biorefining (pulp) segment, followed by strong Raflatac (labelling), Plywood (+6.5%) and Energy (+9.6%) volumes. The top-line grew despite lower pulp volumes (-9.1%; due to scheduled maintenance shutdowns), and still weak paper and energy prices. Adjusted EBIT came in flat yoy at €217m as the group managed to reduce its variable costs by €52m (underpinned by a €150m cost savings programme – 73% achieved so far) and realised €19m of net forex benefits (as most gains were moderated by €29m losses on currency hedges in the paper businesses). Although, sequentially some fixed cost rationalisation (after paper capacity curtailments in H1 15) facilitated an 11% improvement in operating profits. Similar to Stora Enso, UPM too recognised (one-off) gains amounting to €289m on the revaluation of its forest assets. Consequently, net profit jumped 1.2x to €408m (+1.6x qoq). Reported OCFs continued to improve (+21% yoy; +12% qoq) to €363m as working capital improvements were sustained – release of €48m vs. use of €36m in Q3 14 and release of €31m in Q2 15). Management reiterated its 2015 profitability outlook being similar to the performance achieved in 2014. Although its optimism over an anticipated H2 recovery in the paper business will not materialise, adequate support should surface from the pulp business.


Research, Charts & Company Announcements

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Date Source Announcement
18/10/2016 08:01:00 GlobeNewswire Invitation to UPM's press conference and webcast on Interim Results for the third quarter of 2016
11/10/2016 11:00:00 GlobeNewswire UPM Raflatac expands its asset platform in Wroclaw, Poland to meet the label stock demand growth in Europe
30/09/2016 07:00:00 GlobeNewswire UPM Paper Asia to be renamed UPM Specialty Papers
01/09/2016 15:00:00 GlobeNewswire Capital Markets Day: UPM's business model promotes strong performance and profitable growth
31/08/2016 09:00:00 GlobeNewswire Invitation to UPM's Capital Markets Day webcast
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