UPM had a pivotal year – all-time record results and poised to deliver significant growth

UPM had a pivotal year – all-time record results and poised to deliver significant growth
Jussi Pesonen, President and CEO, UPM.

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

“2022 was a pivotal year for UPM. We delivered all-time high annual sales and earnings, driven by success across all of our businesses. At the same time, our transformative growth projects proceeded as planned, getting ready to deliver growth already this year. This remarkable achievement shows UPM’s resilience in an exceptional environment marked by high inflation, Russia’s war in Ukraine, and the European energy crisis. These challenges were met with commercial and operational agility. I am very proud of the company and all UPMers.

Results for Q4 were excellent, too. The quarter was the second best-ever quarter for the company, paling by comparison only to the previous quarter. Quarterly sales grew by 21% to EUR 3,231 million, and comparable EBIT increased by 42% to EUR 653 million. Operating cash flow was EUR 1,576 million, which this time was positively impacted by cash inflow from energy hedges. Our net debt at the end of the year was EUR 2,374 million. The net debt to EBITDA ratio was 0.94, at a good level. Cash funds and unused committed credit facilities at the end of the year totalled EUR 6.4 billion. Our financial position is therefore very strong.

In most businesses, margins continued to improve even from the record strong Q3. As a result, prices and margins in Q4 were at record highs. Towards the end of the year, we saw significant destocking in many product value chains, especially in Europe, which held our delivery volumes back in UPM Communication Papers, UPM Raflatac and UPM Specialty Papers. However, in UPM Communication Papers the effects of destocking were offset by declining input costs, especially energy costs, bringing about excellent Q4 earnings.

UPM Energy reported excellent results, however they were down from Q3 and from the same quarter of the previous year. The energy crisis in Europe eased somewhat during Q4, and the electricity markets functioned well, allowing Finland and Sweden to enjoy the lowest annual average prices in Europe. The OL3 nuclear power plant unit was still in the testing phase with very limited contribution to our volumes. The unit is expected to reach commercial production in March, increasing UPM Energy’s CO2-free electricity output by nearly 50%.

UPM Fibres’ quarterly results reflect high pulp prices but were impacted by rising input costs and the maintenance shutdown of the UPM Fray Bentos pulp mill in Uruguay. Sales prices in sawn timber were affected by the slowdown in construction end-uses. UPM Plywood finished its record-breaking year with a solid quarter. The markets in industrial applications remained strong, whereas markets in construction end-uses slowed down. In Other businesses, UPM Biofuels achieved excellent quarterly earnings. The business achieved record results for the full year, despite the Lappeenranta biorefinery having only been operational for seven months.

Our large investment project in Uruguay is nearing completion. The pulp terminal in Montevideo was inaugurated in October, and the construction of the Paso de los Toros pulp mill was finalised at the turn of the year. The mill is now solidly on track in the commissioning stage and the start-up will take place by the end of Q1. The cash cost level of approximately USD 280 per delivered tonne of pulp will make it one of the most competitive pulp mills in the world and increase our pulp output more than 50% to 5.8 million tonnes annually.

In UPM Biorefining, the biochemicals refinery project in Leuna, Germany, is progressing at a good pace. There is a keen interest in the products of the new biorefinery, confirming the business opportunity and growth strategy to replace fossil-based materials with renewable alternatives for many end-uses. Detailed commercial and basic engineering studies of the potential biofuels refinery in Rotterdam continues at intensive pace.

Stakeholder interest in mitigating climate change and fostering biodiversity has been growing year on year. UPM has ambitious, science-based targets and a strong track record of tangible actions in both respects. In Q4 our performance and transparent reporting on climate change, forests and water security was recognised with a triple ‘A’ score by the global environmental non-profit CDP. We were also listed on the Dow Jones European and World Sustainability Indices (DJSI) for 2022–2023 as the only company in our industry. Responsibility is an integral part of our Biofore strategy and a driver for future success.”

2022 highlights

Sales increased by 19% to EUR 11,720 million (9,814 million in 2021).

Comparable EBIT increased by 42% to EUR 2,096 million (1,471 million), and was 17.9% (15.0%) of sales.

Operating cash flow was EUR 508 million (1,250 million), impacted by cash outflows from energy hedges in highly exceptional energy markets.

Net debt increased to EUR 2,374 million (647 million) and the net debt to EBITDA ratio was 0.94 (0.35). A significant part of the increase in net debt is temporary, due to the cash flow impacts of energy hedges and future energy generation.

Outlook for 2023

“UPM reached record earnings in 2022, and 2023 is expected to be another year of strong financial performance. UPM’s comparable EBIT is expected to increase in H1 2023 from H1 2022. In 2023, UPM’s delivery volumes are expected to benefit from the ramp up of the UPM Paso de los Toros pulp mill and the OL3 nuclear power plant unit and having no strike impact when compared to 2022. In the early part of the year, however, demand for many UPM products is expected to be held back by destocking in various product value chains. The opening of the Chinese economy from the COVID lockdowns and easing inflation in other key economies represent potential for increasing demand as the year progresses.

Year 2023 is starting with high cost level for many inputs, while the lower demand is exerting pressure on product prices. However, several input costs have also progressed past their peak. UPM will continue to manage margins with product pricing, by optimising its product and market mix and by taking measures to improve variable and fixed cost efficiency.

There are significant uncertainties, both positive and negative, in the outlook for 2023, related to the European, Chinese and global economy, Russia’s war in Ukraine, the remaining effects of the pandemic, energy prices and related regulation in Europe, and the ramp-up of the OL3 power plant unit.”


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