Upm Kymmene Corp

Hello everyone. Welcome to UPM quarter four and full year 2024 results webcast. My name is Massimo Reinaudo. I am the CEO of UPM. Here with me is Tapio Korpainen, the CFO. We will soon illustrate the main facts and achievements of 2024 and share some views about what's ahead of us in 2025. But let's start with the performance about the full year 2024. Well, we improved our performance from the previous year and our comparable EBIT increased by 21%. This was driven by a good contribution from our pulp mill in Paso de los Toros and by a moderate improvement in advanced material deliveries. As you may recall, the year started with a strong recovery of the demand from the low levels of 2023, but in the second half of the year, the recovery slowed down. In this environment, we implemented decisive measures to improve our performance. For example, we reduced our fixed cost substantially, 103 million euros in comparison with the year before. Also, during the second half of 2024, we made structural changes in several businesses to streamline and sharpen our competitiveness. And we will drive further streamlining, fixed cost saving, and margin improvement actions in 2025. But back to performance. In quarter four, sales grew 4% year on year. And the comparable EBIT increased by 29% in comparison with the same period of the year before. The EBIT was 418 million euros. This performance includes a fair value increase of our Finnish forest, totaling 105 million euros. Excluding that, excluding the Finnish forest, our business performance was on a similar level as in quarter four, 23. The operating cash flow generation has been strong at 570 million euros. At this point, I'll hand over to Tapio for some analysis on the results.

Thank you, Massimo. So here you have on the left-hand side the Q4 EBIT development compared to the previous year, Q4. And you can see that sales prices were flat on group level, while variable costs increased slightly, and this is mainly coming from fiber costs. Deliveries had a small negative impact on group level EBIT. They grew for pulp, label materials and plywood, but then decreased for communication paper and energy. The forest value gain Massimo mentioned is seen here in the other bar. On the right-hand side, you can see then the sequential development from the third quarter this year to the fourth. Sales price had a clear negative impact here, mainly coming from lower pulp prices. variable cost decreased. The timing of the energy related refunds to book to the fourth quarter in communication papers explains the majority of the variable cost decrease that you see here. And this will reverse into the first quarter now. Fixed costs increased from the third quarter mainly due to seasonal and timing reasons, which is, I would say, typical in this comparison between fourth and third quarter. Then looking at the business area performance in terms of quarterly EBIT, in UPM Fibers, our deliveries increased by 22 percent compared to the third quarter. Average pulp selling price decreased 11%, however, having a negative impact on EBIT in this sequential development. In Uruguay, the railway between Paso de los Toros mill and our port terminal in Montevideo was fully operational by the end of the year, and therefore the new platform is in complete use from the first quarter onwards. In Rafatak, EBIT was slightly down sequentially from the third quarter. Deliveries increased both year on year and sequentially. The market activity was still catching up with the pre-COVID levels, particularly in Europe, however. In this slower recovery environment, Rafatak took measures to simplify and cut costs. The main impact of these measures is to come in 2025. In specialty papers, deliveries of label and packaging papers were stable, while fine paper in Asia had deliveries that recovered somewhat from the slow third quarter. Fine paper prices were lower, while the positive cost impact from decreasing bulk prices was materializing with some delay. As a result, EBIT was slightly down from the third quarter. In energy, Average sales price increased by 18 percent from the third quarter, and EBIT increased. Communication papers, as said, booked the usual energy-related refunds in the fourth quarter. Deliveries decreased by 10 percent in the fourth quarter compared to the third. During the second half of the year, we closed down 330,000 tons of newsprint and 280,000 tons of fine paper capacity. And then when it comes to our financial position, our balance sheet is in good shape. Net debt was 2,869,000,000 euros at the end of the year. Net debt to EBITDA ratio was 1.66 times. Cash funds and committed credit facilities stood at 3.2 billion euros. This slide shows our profit guidance and the main points of our outlook. We expect our comparable EBIT in the first half of 2025 to be in the range of 400 to 625 million euros. We expect higher delivery volumes and lower fixed costs in the first half of 2025 compared to the first half of 2024. 2025 will be the first year of full production at the Paso dos Toros mill in Uruguay, which is expected to grow pulp deliveries. Deliveries are expected to continue to increase for labeling materials, specialty papers and plywood. Whereas in communication papers, deliveries are expected to decrease. Sales margins on average are expected to be lower than in the same period of last year. This is mainly due to the developments that took place during last year. While prices are starting the year 2025 on a similar level as compared to last year, whereas electricity prices have started this year lower than last year. And it is good to keep in mind that there are currently significant uncertainties in geopolitics and in global trade relations. Biofuels and biochemicals had a significant negative impact to our 2025 bottom line. And this we discussed in our Capital Market Day, where we showed the EBIT numbers for the first half of the year. And here we share the corresponding numbers for the second half of the year. Biofuels was impacted by a significant downturn in the advanced fuels markets, while variable costs decreased, but with a delay. Now, going into 2025, we expect the business to improve its performance. Markets have stabilized and variable costs are coming down. In biochemicals, we had all the teams, business processes and systems in place ahead of the start-up of production. The unit has started its sequential startup. Integrated commercial production is expected in the second half of 2025. As we have indicated earlier, we expect the unit to reach full production and positive EBIT contribution in 2027. And this slide summarizes the valuation changes and impairments of our assets in Q4. As mentioned, the fair value of our Finnish forests increased by 105 million euros, and this is primarily due to higher wood price estimates. So the total value of the Finnish forest in the balance sheet is about 1.8 billion euros. We made an impairment of 113 million euros on Goodwill, which was in our Finnish operations, also due to increased wood cost. This goodwill originates actually from quite a long while ago, from acquisitions in the paper business more than 20 years ago. And finally, we made an impairment of 373 million euros on the Loina biorefinery assets, resulting from the cost overruns and construction delays during the project. As you remember, this biochemicals refinery is a first of its kind project. And in those, there always are learning costs. But in this case, this was implemented during a series of external crisis like the COVID-19 pandemic and associated lockdowns in Germany, the war in Ukraine, and then the subsequent resource and supply chain challenges. The book value of the refinery now is in line with the estimated cost to construct a similar facility or refinery. Now I'll hand it back over to Massimo for some analysis of our actions and direction forwards.

Thank you, Tapio. 2025 started with a very volatile business environment. We entered this year and this environment with a broad portfolio of attractive businesses and valuable assets. To enhance the value of the company in the current uncertain operating environment, we are acting on three fronts. We are focusing on the continuous improvement of our overall performance, We are accelerating the growth in targeted areas where we have strong competitive positions, and we are considering opportunities in our business portfolio. Let's start with communication paper. The business is committed to continued healthy cash generation. In 2024, the free cash flow to capital employed was 22%. Communication Paper continues to optimize its product and service mix and to develop its commercial strategy to maintain a leading position in its industry. At the same time, it maintains a high degree of cost discipline. So in this area, last year, as Tapio mentioned earlier on, we closed down about 12% of our overall capacity, or 610,000 tons. The annualized fixed cost savings from these closures is in the area of 45 million euros. When it comes to renewable fibers, 2025 will be the first year of full production at Paso de los Toros in Uruguay. This will add approximately 300,000 tons of pulp production compared with 2024. And this will unlock further potential in our highly competitive Uruguayan platform. The full ramp up of the project leads also to a reduction in its production cost with respect to 2024. And beside that, we are planning for debottlenecking actions at both mills there to increase production further in the medium term. In Finland, on the other hand, the wood market continued to be structurally tight, keeping wood cost high and availability limited. In order to cope better with this situation, in the second part of 2024, we established a new streamlined operating model in Finland to protect the profitability in our Finnish fibers platform. As a result, we have been able to operate our well-maintained pulp mills profitably, despite the combination of high wood cost and low pulp prices of 2024. In advanced materials, we have strong market positions in attractive growth markets in label materials, specialty papers, and plywood. In the current as lower economic environment, we are sharpening our competitiveness in all the free businesses through fixed cost reduction, streamlining product portfolios, and optimizing production. This helps us to support the performance and capture the recovery and growth in these markets. Rafletec's strategy is to grow, both organically and through M&As. Today we have announced the acquisition of Metamark in the UK. Combined with the recent acquisitions of Graphitip and AMC, we are gaining a significant position in the highly attractive graphic solution market. In specialty papers, we aim to capture growth in faster growing geographies and flexible packaging. With these measures, we aim for the businesses to accelerate growth and get back to double-digit EBIT margins. Going into some more detail in the RaffleTech area, the acquisition of Metamark is in line with the strategy discussed in our Capital Market Day in September to target a leading global position in the graphics business to complement our strong position in the labeling space. Graphic is a market worth about 4 billion euros today, fast growing, 5% per annum, and it is a higher value at the asset market for Raflatech. The picture here in this slide illustrate what kind of products we are talking about. We entered this business with the AMC acquisition in 2022. We expanded our position with the Graffiti acquisition in 2024 and now we are accelerating our growth with Metamark. Metamark has a strong market position in Europe and established presence in America and Asia and a track record in terms of growth and profitability and will enable attractive synergies once integrated into Rafletec. Looking next at the decarbonisation solutions, Tapio already briefly touched upon biofuels and energy. I will focus here on the biochemical business launch and the start-up of LOINA, the LOINA Bio Refinery. First, the commercial interest for our biochemical products inside the streams is strong, and it has been confirmed now with customer agreements. The commercial pipeline is robust and is multiple times the annual production capacity of the mill. This allows us to optimize the products and sales mix and supports our confidence about the attractiveness of this business. Let me give you some more details about where we stand with the ramp up of this business. This slide here shows you the main process part, parts of the LOINA biorefinery. The mill consists of different units, each basically containing new to the world technologies. The mill, once fully operational, will supply products that will go into different market segments. We initiated the sequential startup in late 2024. The wood handling sections you see on the left is now fully operational and we are making good progresses in the wood to sugar and lignin process as well as in the lignin to renewable functional fillers process you see at the bottom of the slide. In the sugar to chemical section, a bit above, during the quality assurance checks, we have identified some corrective works needed. Well, this is what commissioning serves for, and these are the type of issues that the startup sequence is designed to find out and avoid in normal operations. So the corrective works have been arranged and are being executed. Meanwhile, the sequential startup of the other units continues. The integrated production with all the units functioning at the same time and jointly for the whole site is expected to take place in the second part of 2025. The full production and positive EBIT contribution are expected in 2027 as previously indicated. Now, turning the page, shaping the business portfolio is an ongoing strategic process. This analysis is especially important during times of uncertainty and potential shifts in the global operating environment, such the ones we are seeing now. In Fibers, we have built a strong global market position and a very competitive platform in Uruguay, which we can leverage for growth further. In raffle attack and specialty papers, we aim to build on our strong global market positions and grow both organically and through acquisitions. In Refletec, we have decided to enter the attractive ideas and market segment of graphics, and we are following up that decision with actions. In biofuels, we last summer decided to take two years to go thoroughly through the business case and test it prior to potential next growth steps. Meanwhile, we look forward to a successful launch of the biochemical business and taking the learnings for the next steps thereto. On the other hand, we have also exited the biocomposites business in 2024 and plan to exit biomedicals now to streamline our product portfolio and focus our development work going forward. We are confident in the UPM ability to create value from our portfolio of businesses and from our recent investments. On this basis, the Board of Directors has today proposed an unchanged dividend of €1.50 per share for 2024, which represents a dividend yield of about 5.6% at the end of 2024. To complement the dividend, the board has also decided to initiate our first share buyback program. The maximum number of shares to be repurchased is 6 million, representing approximately 1.1% of the total number of shares. The maximum amount to be used for the program is 160 million euros. And with this, We end the prepared part of our presentation. So, dear operator, we are ready for questions.