Upm Kymmene Corp

Hello, everyone. Welcome to UPM's Quarter 1, 2025 results webcast. My name is Massimo Reinaudo. I'm the CEO of UPM. I'm here with Tapio Korpainen, the CFO of UPM. Today, we will share the main facts and figures of our business during the past months, and we will share some views about how we have prepared to deal with the uncertainty in the current global economic and trading environment. But let's start with quarter one. We had a good start of the year and improved our business performance compared to the previous quarter. Markets improved in pulp and advanced materials, whereas they continue to be challenging in communication papers and decarbonisation solutions. Our actions to sharpen competitiveness initiated last year started to bear visible fruits in several areas. Quarter one sales were on the same level as last year. Comparable EBIT totaled 287 millions or 10.8% of sales, which is 14% lower than in quarter one last year. In the quarter, we continue to take actions to improve performance and advance growth. In Uruguay, we have now the whole platform fully operational, including the railway connection from Paso de los Toros to the port terminal in Montevideo. In Rafletec, we continue to measure the measures to improve competitiveness, while the acquisition of Metamark in the UK adds to our growth. In communication papers, we announced further capacity adjustments and streamlining to ensure continued performance. And finally, we completed our first share buyback program by early April, having repurchased 6 million shares for 160 million euros. So let's move now to the situation in the different markets. The pulp market gradually improved during quarter one, particularly in China. Market shipments grew from last year, and market prices increased during quarter one from the lows of quarter four. In advanced materials, label materials demand grew in all the main regions. In Europe, the demand exceeded the pre-COVID levels in quarter one, as you can see in the graph shown here. The demand improved in US as well, but there the pre-COVID levels were reached already some quarters ago. In plywood markets, the demand improved slightly too, although from a low level. On the other hand, in the decarbonization solutions, markets continue to be challenging. Winter is normally a high season in the electricity market, but this year it has been rather muted due to the mild winter temperatures and hydro reservoirs in the Nordic countries. And finally, the demand decrease continued for communication paper. But now, I'll hand it over to Tapio for some analysis on our results and for the outlook.

All right. Thank you, Massimo. So here we have again the comparison to the previous quarter and year on year as well. So on the left hand side, compared to the first quarter last year, EBIT decreased mainly due to lower sales prices in all business areas. Variable costs increased slightly on group level with higher wood costs, but then also lower costs for many other raw materials. Deliveries grew for pulp and raflatak, but decreased particularly for communication papers. Then on the right-hand side, looking at the sequential difference from first quarter to fourth quarter last year, sales prices were broadly stable. Deliveries grew and fixed costs decreased. partly for seasonal reasons. Variable costs in this comparison are up, but this is due to the timing of energy refunds in the communication papers that we booked in the fourth quarter last year. Excluding this, changes were minor. Cost increased for wood, but then decreased for many other inputs and raw materials. In the comparison period in the fourth quarter, We booked a significant fair value increase of forest assets, and in this graph, it's visible as a negative in the other bar. And then here we have the comparable EBIT development by business area, and starting with the advanced materials businesses, comparable EBIT recovered in specialty papers and raffle attack in the first quarter. compared to the second half of last year. This was supported by the moderate market demand growth Massimo mentioned. Rafatak captured its share of the growth and its efficiency measures started to bear fruit. Specialty papers also benefited from lower production costs. In fibers, our pulp deliveries grew 21% year on year, If we compare to the fourth quarter, both pulp deliveries and average sales price were roughly on the same level. In Uruguay, variable costs decreased, while in Finland, wood costs did increase. Thanks to the streamlined operating model in Finland, we adopted last fall, and thanks to our efficient mills, the Finnish platform continued to be profitable in the first quarter. Looking at the decarbonisation solutions in energy, the high season for the electricity market was muted by the mild winter and also affected by the high level in hydro reservoirs in the Nordic countries. Market electricity prices were 32 percent lower than last year. Our average sales price decreased by 15 percent compared to last year. The annual maintenance shutdown of Olkiluoto 3 started in the beginning of March. In biofuels, which is reported in other operations, we took a step forward towards restoring profitability with solid deliveries and decreased variable costs. In communication papers, deliveries were 17% lower than last year, or 3% lower compared to the fourth quarter. Average sales price decreased slightly in both comparisons. Thanks to the continuous actions to ensure competitiveness, comparable EBIT held up relatively well. Our financial position is solid. Net debt totaled 2.954 billion. euros at the end of the first quarter, and net debt to IPTA was 1.77 times. Operating cash flow during the quarter totaled 289 million, including a seasonal working capital increase of 112 million euros. The cash flow impact in the first quarter of the share buyback program was 116 million euros. Before going into the discussion of our outlook, let's look at the increased trade tensions and the US tariffs in particular. On this slide, we show the composition of our US business. In 2024, 14% of our sales was directed to the US. Of this, 40% was locally produced and 60% was imported, mainly from the EU. Imports into the United States consisted of communication papers, specialty papers, and some eucalyptus pulp from Uruguay. First, we expect the direct impact of tariffs to our businesses to be relatively limited. and the tariffs in general to be broadly passed through to prices. However, uncertainty in the global business environment has clearly increased. Sowing directly the tariffs may impact demand and trade flows for our products, cause hesitation among customers, disrupt supply chains and weaken consumer confidence in the coming months. The scale of the trade conflict means that there may be negative impacts on economic growth regionally and even globally. And there may be impact in terms of increased currency movements. And on this slide, we summarise UPM's foreign currency exposures. At the end of the first quarter, UPM's estimated net currency cash flows for the next 12 months totaled about 1.6 billion euros. The largest exposure was to the US dollar, worth approximately 1.2 billion euros. We hedge on average 50% of the estimated net currency cash flow for the coming 12 months on a rolling basis. In addition, the earnings of UPM's foreign subsidiaries are translated to euros in reporting. We have significant foreign subsidiaries in Uruguay, the US, and in China. So then this page summarizes our profit guidance and outlook. We have not changed our guidance range 400 to 600, 400 to 625 million euros for the first half of the year. As discussed, we had a good start to the year in the first quarter. However, pulp and electricity prices have so far realized lower than last year, which was visible in our first quarter results. And this makes last year's comparison harder to reach. In the second quarter, we will have significantly more maintenance activity than in the first quarter. We estimate the total maintenance impact in the second quarter to be approximately 90 million euros. The figure in the first quarter coming mainly then from the nuclear maintenance, 10 million euros. So, delta there about 80 million euros sequentially. Additionally, The second quarter is the low season for energy, as we are in the spring flood season, and that season only means lower electricity prices in the Nordic and Finnish market area. Obviously, the current trade conflict adds some uncertainty to short-term demand, commodity pricing, and also in terms of foreign exchange rates. So, taking into account all the seasonal factors and uncertainties, and also the current trading today, it's seen to be more challenging to arrive at the upper part of our guidance range. And now I'll hand it back to Massimo for some summarizing comments.

Very good. Thank you. Well, Tapio discussed some of the current uncertainties we are facing or the world is facing. With our solid balance sheet, competitive business portfolio and broad geographical presence, we are well positioned to face this uncertainty. Since last summer, we have been implementing efficiency and margin management measures that continue to strengthen our competitive position. Beside that, we continue pursuing long-term growth opportunities and work into a portfolio of world-class businesses. But as mentioned earlier, UPM has a diversified business portfolio with a wide geographical spread. And here you see it represented on the slide. This diversified portfolio of businesses subject to different market trends and cycles combined with an exposure to economies in different parts of the world, them too, each with our own trends and cycles, enabled a good performance delivery and resilience in every circumstance in the past. And we are confident it will serve us well going across the volatility of the next months. This also provide us with a range of attractive growth opportunities in the long term. But now, if we look at the situation in some more detail, business by business, let's start with renewable fibres. Well, in this business, we have now our world-class low-cost platform in Uruguay in full operation. Work continues to optimise and increase efficiency and those further drive down cash costs. In the medium to long term, we have good debottlenecking potential in that platform, as discussed in our Capital Market Day in last September. Meanwhile, in Finland, we have been able to maintain profitable operations at EBIT level, despite the tight wood market in the Nordic region and low pulp prices. When we go to advanced materials, our actions to improve competitiveness initiated last year started to bear visible fruits in quarter one. The labeling material markets have now recovered back to above pre-COVID levels and are expected to show healthy growth in the longer term. To put that in numbers, deliveries of labeling materials in Europe grew 1 percent year-on-year or 13 percent sequentially from quarter four. And in North America, they grew 3 percent year-on-year and 7 percent from quarter four. In both instances, we captured a fair share of that growth, while improving margins compared to quarter four. Beside that, M&A are an option to accelerate the growth we are considering when it comes in a synergistic manner. The most recent example is our Metamark acquisition in February, which is now integrated in our operations. Let's look now at decarbonization solutions. In biochemicals, the task is now to launch a completely new business. We're making good progresses with the commissioning and sequential startup of the Loina biorefinery. As discussed three months ago, we expect integrated commercial production to start in the second half of the year. And we reconfirmed the commercial interest to be high with an opportunity pipeline several times the annual capacity of the refinery. In biofuels, the short-term priority is the turnaround in profitability. As Tapcho mentioned, we achieved a good improvement already in quarter one this year. But beside that, more in the medium term, we're continuing the work of validation of growth options in this area and going ahead. Energy is facing low pricing in the short term. However, on a medium to longer term, electricity demand in Finland is expected to grow significantly. And our task is to maximize the value opportunities offered by this development. Communication paper, then, is facing or continuing to face a decline in demand and has to continuously make sure its competitiveness remains high. On this base and with this objective in mind, we took decisive actions last year with capacity and cost reductions, and we continue to do so this year as well. In March, we announced the plan to close the Ettringen Mill in Germany. and to streamline operations in this business. This would reduce our paper capacity once the negotiations are concluded by 270,000 tons and will reduce our annual fixed cost by 39 million euros. Despite these measures, we remain a large global player, the largest in Europe, and with facilities also in UK and US. And our network of meals and global sales organization provides us a unique level of flexibility when it comes to dealing with potential changes in the global flows determined by the current trade tensions. So, and in summary, Q1 was a good start of the year. During the quarter and going ahead, looking ahead, the trade tensions have added uncertainty to the global business environment. In this environment, we expect the direct impact of tariffs to be relatively limited. Whilst the economic environment is changing, we maintain firm our priorities that are improving competitiveness across all businesses and through that accelerate the growth in the mid and long term. Large and running a business which is made of large-scale businesses delivering each world-class performance remains our objective. With a solid balance sheet and a competitive business portfolio and broad geographical presence, we trust we are well positioned to face the uncertainty ahead. And this concludes the presentation today and we are now ready for your questions.