UPM RESULTS Q2 2016
Jussi PesonenPresident and CEO
26 July 2016
| © UPM
Q2 2016 – comparable EBIT increased by 21%,
cash flow reaching new highs
EBITDA increased by 21%
+ Cost efficiency measures resulted in
significantly lower variable, fixed costs
+ Growth projects contributed to earnings
+ Realised currency hedges neutral
Comparable EBIT increased by 21% to
EUR 264m (219m)
Strong operating cash flow at
EUR 434m (324m)
Net debt decreased by EUR 759m to
EUR 1,876m (2,635m)
2
0
50
100
150
200
250
300
350
400
450
Q113
Q313
Q114
Q314
Q115
Q315
Q116
EURm Comparable EBITDA
385
317
| © UPM
Mostly favourable market demand in Q2 2016
Growing demand
• Pulp
• Advanced biofuels
• Self-adhesive label
materials
• Label, pack and release
materials
• Office papers in Asia
• Plywood
• Sawn timber
Stable demand
• Electricity
• Fine papers in Asia
Declining demand
• Graphic papers in Europe
and North America
3 | © UPM
| © UPM
UPM continues its transformation
Actions so far in 2016
• Great ramp-up at the UPM Kymi pulp mill’s first expansion
• Ramp-up at UPM Changshu PM3 and the Lappeenranta
biorefinery continues
• Closed the Madison SC paper mill in the US
• Sold the UPM Schwedt newsprint mill in Germany
• Corporate structure changed to match the business
structure
In the pipeline
• UPM Kaukas pulp mill investment
• UPM Otepää plywood investment
• UPM Kymi pulp mill second investment
EUR 98m, 170,000 tonnes
4
| © UPM
0
50
100
150
200
250
300
350
400
450
500
EBITDA
Q2/15
EBITDA
Q2/16
Comparable EBITDA in Q2 2016 vs. Q2 2015
Raflatac
Paper
Asia
Other
operations
and
eliminations
Energy
BiorefiningPaper
ENA
Plywood
0
50
100
150
200
250
300
350
400
450
500
EBITDA
Q2/15
EBITDA
Q2/16
EURm
Prices
Variable
costs
Fixed
costs
Deliveries
UPM benefited from cost efficiency
measures in a deflationary
business environment EURm
Cost efficiency improved in all businesses.
Biorefining, Raflatac and Paper Asia
showed growth in deliveries
5
31712.4%
38515.8%
Currency,
net
impact
31712.4%
38515.8%
| © UPM
Comparable EBIT by business area
6
0
2,5
5
7,5
10
12,5
0
10
20
30
40
50
Q114
Q314
Q115
Q315
Q116
0
5
10
15
20
25
0
30
60
90
120
150
Q114
Q314
Q115
Q315
Q116
0
15
30
45
60
0
20
40
60
80
Q114
Q314
Q115
Q315
Q116
0
2
4
6
8
10
0
10
20
30
40
50
Q114
Q314
Q115
Q315
Q116
-2
0
2
4
6
-25
0
25
50
75
Q114
Q314
Q115
Q315
Q116
0
4
8
12
16
20
0
5
10
15
20
25
Q114
Q314
Q115
Q315
Q116
EURm % of salesUPM Paper Asia EURm % of salesUPM Paper ENA EURm % of salesUPM Plywood
EURm % of salesUPM RaflatacEURm % of salesUPM EnergyEURm % of salesUPM Biorefining
| © UPM
Strong cash flow
7
0
200
400
600
800
1 000
1 200
1 400
1 600
Q11
1
Q21
1
Q31
1
Q41
1
Q11
2
Q21
2
Q31
2
Q41
2
Q11
3
Q21
3
Q31
3
Q41
3
Q11
4
Q21
4
Q31
4
Q41
4
Q11
5
Q21
5
Q31
5
Q41
5
Q11
6
Q21
6
Operating cash flow
Cash flow
after investing
activities
EURm Cash flow, trailing 12 months
• Q2 2016 operating cash
flow was EUR 434m
(324m)
• In Q2 2016, working capital
decreased by EUR 10m
(EUR 31m)
• In the latest 12 months,
operating cash flow was
EUR 1,528m (1,194m),
EUR 2.86 per share (2.24)
| © UPM
Balance sheet continued to strengthen
8
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
2011
2012
2013
2014
2015
2016
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
Net debt, EURmNet debt / EBITDA(trailing 12 months)
Net debt
Net debt / EBITDA
1.3
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
2011
2012
2013
2014
2015
2016
0
10
20
30
40
50
60
70
Net debt, EURm Gearing %
Net debt
Gearing
24
Liquidity was EUR 1.5bn at the end of Q2 2016
Repayments total EUR 0.15bn in 2016
| © UPM
Growth projects ramping up and contributing
to earnings in 2016 and beyond
9
Lappeenranta
biorefinery
120m litres of
renewable diesel
UPM Plywood
Otepää mill
expansion
to 90,000m3
Kymi
pulp mill
expansion
170,000t
UPM Raflatac
50% expansion in
APAC, growth in filmic
labelstock in Poland
UPM Paper Asia
Changshu
new speciality
paper machine
360,000t
Kaukas
pulp mill efficiency
improvement, paper and
pulp decoupling completed
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Investments EUR 150m
| © UPM
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Kymi
pulp mill
expansion
170,000t
In operation and ramping up
| © UPM| © UPM10
Outlook for 2016 is unchanged
• UPM’s profitability improved in 2015 and the improvement is expected to continue in 2016.
• UPM’s growth projects are expected to contribute positively to the company’s earnings in 2016, compared with 2015.
• UPM continues its measures to reduce variable and fixed costs in 2016.
• Currencies are expected to contribute positively as hedges roll over, assuming relevant currencies stay at about the same level as at the end of 2015.
| © UPM
| © UPM
Summary
Strong Q2 2016 results – further evidence of the business model
• Cost efficiency measures
• Growth projects
• Record strong cash flow and balance sheet
UPM is well positioned
• Ramp-up of growth projects continues
• Cost efficiency measures continue
• Strong business model with six agile businesses,
efficient capital allocation and an industry-leading
balance sheet
11
| © UPM
Welcome to our Capital Markets Day
in London!
12
UPM’s Capital Markets Day
August 31 dinner with a keynote speech by
the Chairman of the Board
September 1 presentations and discussion
with the CEO and the UPM
management team
More information: www.upm.com/Investors/
Register by email: [email protected]
“We have a strong business model with six agile businesses, efficient capital allocation
and an industry-leading balance sheet. This ensures good opportunities for focused
growth investments, continued strong cash flow and an attractive dividend.”
– Jussi Pesonen, President and CEO
| © UPM14
Performance1 Growth2 Portfolio3 Innovation4
UPM strategic focus areas
Continuous
improvement in
performance
“Cost efficiency
measures”
Focused growth
projects
“EBITDA target for
growth projects
EUR 200m”
Business portfolio
development and
value creation
“Net debt reduction
EUR 759m”
New business and
product
development
“Biofuels
commercial
ramp-up”
| © UPM
Strengths of UPM’s model
15
Top performance
Industry-leading
balance sheet
Attractive dividend
Strong cash flowFocused
investments
| © UPM
Sales
EUR 2,445m -4%
Comparable EBITDA
EUR 385m +68m
Q2 2016 – comparable EBIT increased by 21%,
cash flow reaching new highs
16
Comparable EBIT
EUR 264m +45m
Comparable profit before tax
EUR 252m +57m
Q2 2016 vs. Q2 2015:
Comparable EPS
EUR 0.37 +0.05
Net debt
EUR 1,876m -759m
Operating cash flow
EUR 434m +110m
Gearing
24% -11pp
Net debt / EBITDA
1.25x -0.75x
Comparable ROE
10.2% +1.4pp
| © UPM
Low investment needs in existing assets allow
growth projects with modest total capex
17
0
200
400
600
800
1 000
1 200
2008 2009 2010 2011 2012 2013 2014 2015 2016e
EURm
Operational investments
329
Capital expenditure
Strategic investments
Depreciation
Uruguay
acquisition
Myllykoski
acquisition
486
Estimate
375 400
| © UPM
Maturity profile and liquidity
18
0
100
200
300
400
500
600
700
800
900
1 000
2016
2017
2018
2019
2020
2021
2022-2
027
2028
2029
2030
EUR million
0
100
200
300
400
500
600
700
800
900
1 000
2016
2017
2018
2019
2020
2021
2022-2
027
2028
2029
2030
EUR million
Liquidity
Liquidity on 30 June 2016 was EUR 1.5bn
(cash and unused credit facilities)
Bilateral committed credit facilities EUR 1,075m
Committed credit facilities
Maturity profile of outstanding debt Committed credit facilities’ maturities
| © UPM
0
25
50
75
100
125
150
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Q2 14
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
Q2 16
0
5
10
15
20
25
30
UPM Biorefining
19
Comparable EBITEURm % of salesActions
• Pulp production capacity increased
and production efficiency improved.
• Potential for further increases in
production identified at UPM Kymi
pulp mill; investment decision
announced in July.
• Scheduled maintenance carried out at
the Lappeenranta biorefinery.
• Cost efficiency improved.
| © UPM
UPM Energy
20
0
20
40
60
80
Q1 13
Q3 13
Q1 14
Q3 14
Q1 15
Q3 15
Q1 16
0
20
40
60
80
Actions
• Scheduled maintenance shutdown at
Olkiluoto nuclear power plant units.
Comparable EBITEURm % of sales
| © UPM
UPM Raflatac
21
0
10
20
30
40
50
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Q2 14
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
Q2 16
0
2
4
6
8
10
Actions
• Improved product mix and operational
efficiency enabled record strong
profitability.
Comparable EBITEURm % of sales
| © UPM
UPM Paper Asia
22
0
10
20
30
40
50
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Q2 14
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
Q2 16
0
3
6
9
12
15
Actions
• Production ramped up successfully at
the new speciality paper machine at the
UPM Changshu mill in China,
contributing to solid growth in
deliveries.
Comparable EBITEURm % of sales
| © UPM
UPM Paper ENA
23
-40
-20
0
20
40
60
80
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Q2 14
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
Q2 16
-4
-2
0
2
4
6
8
Actions
• Successful cash release as a result of
profit improvement, reduction in
working capital and sale of assets.
• In line with the decision announced in
March, paper production ceased at
Madison Paper Industries in the US.
• According to the agreement
announced on 26 April 2016 the UPM
Schwedt mill site and relevant assets
were transferred from UPM to LEIPA
Georg Leinfelder GmbH on 1 July
2016.
Comparable EBITEURm % of sales
| © UPM
UPM Plywood
24
0
5
10
15
20
Q1 13
Q2 13
Q3 13
Q4 13
Q1 14
Q2 14
Q3 14
Q4 14
Q1 15
Q2 15
Q3 15
Q4 15
Q1 16
Q2 16
0
5
10
15
20
Actions
• Strong performance.
• Otepää mill expansion proceeded.
• UPM Pellos mills exceeded 10 million
cubic meters in all-time total
production.
Comparable EBITEURm % of sales
| © UPM
Chemical pulp market
26
Source: PPPC World-20 statistics
Pulp inventories
Days of
supply
300
400
500
600
700
800
900
1 000
1 100
2008 2009 2010 2011 2012 2013 2014 2015 2016
USD/tonne
Q2 NBSK pulp price increased 1% from Q1
Q2 BHKP pulp price decreased 5% from Q1
BHKP
NBSK
Source: FOEX Indexes Ltd.
15
20
25
30
35
40
45
50
55
60
65
2008 2009 2010 2011 2012 2013 2014 2015 2016
Hardwood
inventories
Softwood
inventories
| © UPM
Price development in the Nordic and Helsinki power markets
27
Source: Reuters
0
10
20
30
40
50
60
70
0
10
20
30
40
50
60
70
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
EUR/MWh
Coal SRMC Front Year Helsinki Front Year System Front Year
Finnish and Nordic electricity prices
| © UPM2828
400
500
600
700
800
900
1000
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
Jan-
13
Jan-
14
Jan-
15
Jan-
16
News SC LWC
WFC WFU
EUR/t
Europe
400
500
600
700
800
900
1000
1100
1200
1300
Jan-
08Ja
n-09
Jan-
10Ja
n-11
Jan-
12Ja
n-13
Jan-
14Ja
n-15
Jan-
16News SC LWC
WFC WFU
USD/t USD/t
ChinaNorth America
Sources: PPI, RISI
Graphic paper prices
400
500
600
700
800
900
1000
1100
1200
1300
WFC r (100% chemical pulp)
Reels (mixedchemical/mechanical pulp)
Uncoated Woodfree Reels (100%chemical pulp)
| © UPM
Demand-supply balance in European
graphic paper is visible in margins
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
29
Cash cost of a marginal producer
Price
EUR/t
Sources: PPI, RISI, Pöyry