UPM swings to Q3 loss of €109M from profit of €178M in year-ago period with drop in volumes, rise in costs, €295M in special items; sales up 12.6% to €2.6B amid higher paper prices, Fray Bentos mill and Myllykoski acquisitions

HELSINKI , October 26, 2011 (press release) – Interim report for January–September 2011:

  • Earnings per share excluding special items were EUR 0.19 (0.28), and reported EUR -0.21 (0.34)
  • EBITDA was EUR 331 million, 12.7% of sales (384 million, 16.6% of sales)
  • Delivery volumes turned down and variable costs reached the peak
  • Operating cash flow continued solid at EUR 285 million
  • Earnings per share excluding special items were EUR 0.77 (0.72), and reported EUR 0.68 (0.80)
  • EBITDA was EUR 1,082 million, 14.7% of sales (1,025 million, 15.6% of sales)
  • Myllykoski acquisition was completed and a major restructuring plan announced
  • Balance sheet is strong even after the Myllykoski acquisition
Key figures Q3/2011 Q3/2010 Q1-Q3/2011 Q1-Q3/2010 Q1–Q4/2010
Sales, EURm                     2,603  2,312 7,382 6,567 8,924
EBITDA, EURm 1)                    331 384  1,082 1,025  1,343
 % of sales                       12.7 16.6  14.7  15.6  15.0
Operating profit (loss), EURm -159 238 328 548 755
 excluding special items, EURm 136 204 535 519 731
 % of sales                       5.2 8.8 7.2 7.9 8.2
Profit (loss) before tax, EURm   -188 199 323 462 635
   excluding special items, EURm     107 165 462 433 611
Net profit (loss) for the period, EURm -109 178 355 417 561
Earnings per share, EUR          ­-0.21 0.34 0.68 0.80 1.08
   excluding special items, EUR 0.19 0.28 0.77 0.72 0.99
Operating cash flow per share, EUR 0.54 0.63 1.40 1.23 1.89
Shareholders' equity per share at end of period, EUR 13.78 13.28 13.78 13.28 13.64
Gearing ratio at end of period, %  52 51 52 51 46
Net interest-bearing liabilities at end of period, EURm 3,758 3,553 3,758 3,553 3,286

Jussi Pesonen, President and CEO, comments on the result:

“During the third quarter UPM’s delivery volumes fell while variable costs reached a peak level. These coinciding events impacted on our operating profit. Particularly the lower pulp and fine paper deliveries in Europe had an adverse impact on the operating profit”.

“On a positive note, our strong performance in terms of operating cash flow continued. Myllykoski integration proceeded well and the magazine paper business showed solid performance. The demand for publication papers was stable and, during the quarter, we were able to increase paper prices by 1-2%. Also, the Label and Plywood businesses were able to implement price increases. However, this was not sufficient to offset the rise in variable costs during the third quarter. While the cost level still remains high, we estimate that we have now reached the peak and variable costs are expected to start gradually decreasing”.

“We are prepared for a heavy winter. There is already a clear decline in demand in Europe for our timber and plywood businesses. However, UPM is in a much better position to respond to the rough economic climate compared to 2008”.

“The strategic acquisitions of the Fray Bentos mill and the Myllykoski have further improved our cost competitiveness and cash flow generation. Our net debt increased only EUR 205 million year-on-year. Our balance sheet is strong, which gives us opportunities to consider further strategic moves”.

“As announced after the Myllykoski acquisition, we have plans in place to reduce 1.3 million tonnes of paper capacity in Europe and gain annual cost synergies worth EUR 200 million. We are prepared to adopt flexible production operations in various businesses, if needed, and will continue our stringent cost control and strict investment policy. All in all, UPM is well prepared to face any economic scenario”, Pesonen concludes.

Outlook for 2011

Economic outlook has turned weaker during the second half of the year. As a result, demand for UPM’s products for the rest of the year is lower than earlier anticipated.
Price outlook for UPM’s products is mostly stable for the rest of the year and variable costs are anticipated to start gradually to decrease during the fourth quarter of 2011 from the peak level reached in the third quarter of 2011.

UPM’s full-year 2011 operating profit excluding special items is expected to be somewhat lower than last year. Previously, the full year 2011 operating profit excluding special items was expected to improve from last year.

The complete Interim Report is available on the company website at www.upm.com

UPM will publish the Financial Review for 2011 on 1 February 2012.

Industry Intelligence Editor's Note: In an omitted portion of the release, UPM reported a Q3 2010 special items charge of €295 million.

* All content is copyrighted by Industry Intelligence, or the original respective author or source. You may not recirculate, redistrubte or publish the analysis and presentation included in the service without Industry Intelligence's prior written consent. Please review our terms of use.