Upm Kymmene Corp

Good morning and good afternoon. Thanks for joining us for the UPM Quarter 1, 2024 results webcast. I'm Massimo Reinaudo. I'm the CEO of UPM. Here with me is Tapio Korpainen, the CFO of UPM. Good morning to everyone. Let me share now the main facts and achievements of the first quarter. Well, quarter one has represented a positive start of the year under different dimensions. First, the recovering demand and continued successful margin management have resulted in improved earnings compared to previous quarters. The destocking that has characterized last year is now over for all our businesses. Second, our transformative investments, the new Paso de los Toros pulp mill in Uruguay and the Olkiloto Free Nuclear Power Plant in Finland have delivered good contributions to the quarter one earnings. And finally, the improvement has been wide-based and most of our businesses have improved their performance sequentially. Our sales totaled 2.64 billion euros, and our comparable EBIT generation has been robust at 333 million euros, or 12.6% of sales. As I said earlier, in quarter one, the destocking was over, and the inventories have been normalizing. Last year, many industries have experienced a heavy destocking and a drop of the demand that, in scale and duration, has not been experienced before. During earlier calls, we have used this graph that describes what happened to the demand of self-adhesive materials in Europe last year as an example. In this graph is now well visible that since mid of last year, the demand started to recover and the recovery accelerated significantly in quarter one. In this specific case, the demand in quarter one returned to the levels of 2019 or to pre-COVID levels. We are not yet to the peaks reached later on, but the situation has been clearly improving, supported by, as I said, the normalization of inventory levels and the underlying consumer demand that has returned to growth. Albeit this is about self-adhesive label material, we see similar dynamics in most of the industry segments where we operate. As a result, in quarter one, our delivery volumes increased in five out of the six business areas that we have with respect to the last quarter. In fact, they grew in raffle tuck, in specialty papers, in plywood, in fibers, and in communication papers. The performance of our energy business area has been robust, too, with the EBIT performance reaching the best quarter one ever. One important contribution to our performance came from our transformative projects, as said. And the new pulp mill in Paso de los Toros in Uruguay has been one of them. The production ramp-up progressed well and reached 83% of the capacity during the quarter. Earlier on, we indicated that we were expecting to reach a positive EBIT in the first part of 2024. In fact, we reached it during quarter one already. Looking ahead, the mill will undergo a scheduled maintenance shutdown in June, as already informed earlier on. After the shutdown, we expect to turn from the ramp-up phase to normal operations and reach capacity during the second semester. We will continue to optimize the mill and the Uruguay platform and drive cash costs farther down toward the targeted $280 per delivered ton. By this standpoint, an important milestone has been reached in early April as the railway between the mill and our port terminal in Montevideo started operations. In summary, the ramp-up of the mill is proceeding well, and with the completion of the ramp-up phase, we will have 60 percent of our overall pulp capacity in Uruguay in a highly competitive platform. But when we talk about transformative projects, let me remind that last year also the Olkiloto Free Nuclear Power Plant started to operate. As anticipated, the energy business had a strong start of the year, and the new power plant, in presence of a strong market, proved its importance for the electricity system and contributed well to our quarter one earnings. But now let me hand it over to Tapio for some analysis on our results.

Thank you, Massimo. So looking at the drivers of the bottom line in the first quarter on the left hand side, you can see the Q1 EBIT bridge compared to the Q1 of 2023. Sales prices were significantly lower than last year with all businesses except energy realizing lower prices. Variable costs decreased too, but on group level this positive impact from variable costs was smaller than the impact from lower sales prices. On the positive side, delivery volumes were materially higher too. This was due, first of all, from additional volumes from the Paso de los Toros, and secondly, from the Okioto 3 production during the quarter, and then also, finally, from the recovering market demand in several businesses. Volumes grew in fibers, energy, raft attack, and specialty papers. Fixed costs were slightly lower and depreciation was higher due to the start of the Paso dos Toros pulp mill. On the right hand side, you can see the EBIT bridge compared to the fourth quarter of last year. On UPM level, we were able to increase prices while variable costs broadly were stable. The increase in variable costs that you can see here is due to the timing of the energy related refunds that we typically book in the fourth quarter. Fiber costs increased, whereas many other variable costs still decreased. Delivery volumes increased in all other business areas except for energy. Electricity deliveries were lower mainly due to the scheduled maintenance shutdown in Olkiloto 3, which started in early March. Fixed costs were lower than in the fourth quarter. UPM operations in Finland were impacted by the political strikes in March and early April. We were not party to this political dispute, but were affected by the resulting logistical blockade. Production in most of our paper and pulp mills was suspended, and all businesses experienced disruptions in logistics out of Finland. We succeeded well in mitigating the impact of the strikes by managing inventories and servicing customers from outside of Finland, and therefore the result impact was modest and is split between the first and the second quarter. Then going to the business area, starting from fibres. In fibres, profitability improved, market demand for pulp was good, and prices increased from the fourth quarter. The average pulp price increased by 13% from the fourth quarter, but still compared to last year was 23% lower. Our pulp deliveries grew from last year by 71 percent. Paso de los Toros contributed to the volumes and earnings. And as Massimo pointed out, energy achieved its best first quarter result so far. Cold winter weather in the first months of the year boosted electricity consumption seasonally, supporting market prices. We also succeeded well in hydropower optimization as also volatility of prices was high during the first quarter. Average electricity sales price increased by 24 percent from the fourth quarter or 12 percent from last year. In such strong markets, the Olkiluoto 3 nuclear power plant unit proved its importance both for the Finnish electricity system and for contributing to our earnings. Then, rafletox markets continued to recover, with European label materials demand growing by 29% from last year or by 16% from the fourth quarter last year. North American demand was recovering as well, around the same level, 14% from the fourth quarter. Raflatak succeeded well in maintaining good unit margins, and hence the recovering deliveries led to recovery in profitability as well. In a similar manner, demand and deliveries in specialty grades in the specialty paper business area were recovering during the first quarter. Meanwhile, demand was solid for fine papers in Asia. Good profitability was maintained despite increasing variable costs. And communication papers continued to perform well. In the first quarter, overall demand for graphic papers in Europe was slightly higher than a year ago, but sales prices were clearly lower. The business continued its cost reduction actions. It benefited from the plattling mill closure that took place in the fourth quarter and completed the sales of the Steyr Mill paper mill. In UPM plywood, destocking in the markets ended, leading to some improvement in deliveries of spruce plywood. The business aligned production to market demand with temporary layoffs. In other operations, the European market for advanced renewable fuels was soft. Biofuels sales prices decreased, while input costs still remained elevated. The detailed commercial and basic engineering phase for the potential biorefinery in Rotterdam in the Netherlands continues. Biochemicals is progressing at full speed towards starting production in the Loina biorefinery and launching the biochemicals business by the end of this year. The first parts of the biorefinery have been commissioned and the commercial interest for the wood-based products remains high. Most of the refinery's operating team are already in place, and during the second quarter, further parts of the refinery start technical trial runs. Our financial position continues to be strong. First quarter operating cash flow was solid at 335 million euros, including a seasonal outflow of working capital. Our net debt decreased to 2.312 billion 312 million euros during the quarter, which is equal to 1.46 times EBITDA. The annual general meeting of UPM decided on an unchanged dividend of 1 euro 50 cents per share, totaling 800 million euros, and paid in two installments. The first installment was paid on 16th of April. And our capex guidance for the year is unchanged at 550 million euros. Also, our outlook for the year is unchanged. We expect our comparable EBIT to increase this year from last year, driven by higher deliveries, the ramp-up of Paso de los Toros pulp mill and lower fixed costs. In the first half of 2024, we expect our comparable EBIT to fall short of last year's second half due to the timing of the energy-related refunds in the fourth quarter last year and due to high maintenance activity in the second quarter of this year. We already discussed the impact of the energy refunds in the sequential EBIT bridge on slide five. During the first half of the year, the total maintenance impact is expected to be about 120 million euros, 110 million of which will take place in the second quarter. About 100 million of the maintenance impact will take place in the fibres business due to the three pulp mill maintenance shutdowns. But then in the second half of the year, we anticipate a good uninterrupted run that will support our results. It is also good to remember that the energy business area made its best Q1 results so far, driven by high energy demand and energy prices during the winter months. Winter is over, so it is likely that seasonally the energy business performance will moderate. So now I will hand it back over to Massimo for some comments on UPM growth.

Thank you Tapio. I would like now to open up a window over the future, the future beyond this year. In the past weeks, ever since I had the privilege to be given this role, I have been asked a number of times, what will you change in the future or what will UPM change? In reality, I don't think that change is the right word to characterize what we will do in the future. Well, of course, we are operating in a very volatile environment. There is uncertainty and complexity in the future. So we will need to continuously adapt or anticipate the changes wherever possible. So change is some way part of our current way of working. But looking into the future, the word that I think is more relevant for us is choice, is making the right choices or the best choices. Let me explain. Within the UPM portfolio, as portrayed here, we have plenty of opportunities to grow. And we have invested in recent years already to foster and exploit these opportunities. We have what we call the traditional core businesses, like Fibers, and you have heard about investment in Paso de los Toros, or Energy, and you have heard about Olkiloto Free. But also in our specialty packaging material businesses, We have invested in the AMC acquisition two years ago or in paper machine conversions such in Norland. So we have been investing in the core businesses to foster the growth of the future. But at the same time, we have also invested to get into new spaces. Here you see the so-called biorefining area. And you have heard the talking about LOINA, and you know that we are into the engineering phase for a potential investment into a new biofuel refinery in Rotterdam that would expand our biofuel capacity. In that space, there are many more opportunities that we can pursue, whether that is hydrogen production or carbon capture or use of biogenic carbon for the production of, if you will, as I said, there are many opportunities ahead. And we are at the crossroad of many industries, and we can choose where to put our resources to accelerate the growth of the future. But here on this other slide, I want to give you another dimension. Finland has been the cradle of our company that has grown across its evolution and over the decades to become what it is today, a multi-billion global company. And I've been willing to take this representation that tells under different metrics what UPM is today. This describes a company with sales and operations in five continents. We are about 16,600 people globally and we are present nowadays in 43 countries and we have 86 nationalities represented in our teams. This diversification has helped us to be resilient and perform in every market condition and beyond the geopolitical tensions in the past. And this will continue in the future. But now, if we look both at the opportunities offered by our product portfolio and by our global scale, we are well positioned to take profit of the different megatrends that are shaping the economy globally now and in the coming years. So this is why making the right choices or making the best choices is the key word here, so that we ensure we will continue to generate robust performance good return on investments and attractive dividends. This is our focus going forward. And in order to discuss more extensively about our future, I would like to take this opportunity to advertise our upcoming Capital Market Day in London on the 5th of September. I hope I can meet you there in person and you can meet with me, the UPM group executive team there. But in case you can make it to London, there will be an opportunity to follow the event online too. The registration to the event is now open on our website. But now, and to conclude. Quarter one was a positive start to 2024, underpinning our confidence for the full year. Our product markets are recovering, and our businesses are driving performance in an improving business environment. In quarter two, several assets will undergo planned maintenance shots, impacting our short-term performance. But in contrast, the second half of the year, we anticipate a good uninterrupted run that will support our results. UPM is in strong shape financially, with a portfolio of competitive businesses in growing markets supported by global megatrends. I look forward to opening the next chapter in the UPM growth while delivering consistent and strong performance. This concludes the prepared part of the presentation. Dear operator, we are ready for questions from the audience.