Upm Kymmene Corp

Hello, everyone. Welcome to UPM Quarter 1, 2026 results webcast. I'm Massimo Reinaudo. I'm the CEO of UPM. Here with me is Tapio Korpainen, the CFO. Well, we had a good start of the year. Despite the fact that geopolitics continued to introduce new uncertainties, we delivered solid results during the quarter. Hello, everyone. Welcome to UPM Quarter 1, 2026 results webcast. I'm Massimo Reinaudo. I'm the CEO of UPM. Here with me is Tapio Corpainan, the CFO. Well, we had a good start of the year. Despite the fact that geopolitics continued to introduce new uncertainties, we delivered solid results during the quarter. The quarter one comparable EBIT was 274 million euros, with an EBIT margin of 10.8% in line with last year. Our decarbonisation solutions achieved an excellent performance, and our advanced materials businesses continue to show steady and resilient performance. Fibres improved its performance compared to the previous quarter. Our diversified business portfolio and the global spread of our activities served us well in this volatile environment. As an example of the strength of our business model and strategy, the recent Middle East crisis brought challenges and opportunities in equal number. Looking ahead, our work continues with a disciplined focus on improving competitiveness and performance while executing transformative portfolio projects. Today, we announced a demerger plan concerning the separation of UPM Plywood into a new independent listed company. Beside that, the preparation for the planned graphic paper joint venture with SAPI continued and continues, and we expect the definitive agreement to be signed during the first half of this year and to conclude the process by the end of the year, subject to merger control approvals. I will share some more about these two initiatives shortly. But first, let me walk you through the main facts and achievements of the quarter, business by business. We start today with decarbonisation solutions. And in there, the UPM energy business achieved its best quarter one results ever, with a comparable EBIT of 100 million euros. Differently from what one may think, this performance is not depending by the general global or European energy crisis, but is influenced by Finnish specific factors. Some are of seasonal nature and others are structural. When it comes to the seasonal component, in quarter one, the electricity consumption in Finland reached an all-time record, supported by a cold winter. This resulted in high energy prices during the quarter. The winter being over now, prices have moderated from the peaks. This effect is seasonal in the sense that it is influenced by meteorological patterns of the different seasons, but it lays over a structural change in the market. And if we talk about the structural component, there is a general year-on-year increase of the energy consumption due to the electrification of the economy and to the installation in Finland of data centers, which is now happening at scale, and green industries, which are more of our future prospects. Because of this, electricity consumption in Finland is expected to grow significantly over the next years at a pace in between 4% and 7% year on year, which means that in 2030, the energy consumption will be somewhere between 20% up to 45% higher than it is now. In a market where demand will grow faster than new production can be added, we are in a unique position to generate value. This transition requires, in fact, three things to happen at pace. Locations where to install data centers or these projects, grid connections to feed them with energy, and finally, baseload CO2-free energy. When it comes to locations and grid connections, we have prepared a portfolio of suitable industrial sites with existing or close-by connections. This is important as site readiness speeds up permitting and construction. As for energy, we can offer 12 terawatt hours of clean baseload power through PPAs. If market conditions will make it relevant, we will also be able to add additional renewable power. We have been developing a pipeline of potential wind and solar power for an extra generation up to one gigawatt, ready to be built earliest in 2027, as said, if the market condition will make it a good investment. The energy business has been run in an excellent way during many years under Tapio's leadership. Given the number of opportunities developing in this area, we will establish a new executive vice president position fully dedicated to developing this business further and to take the lead of this business over from Tapio in due time. Now, looking at next generation renewables, biofuels continue to improve performance and posted strong quarter one results. You may remember we turned this business around and back to profitability last year. It is now back to good profitability thanks to our work to improve the cost base, supported by a good demand for renewable fuels and prices boosted by the increasing fossil fuel price recently. Talking next about biochemicals, and Leuna specifically, the ramp-up activities are proceeding as planned, and the production of industrial sugars and lignin is ongoing. The production of renewable functional fillers will start soon to move next to the production of glycols. At that point, we will have reached the stage of integrated production. The demand of our biochemical products is robust and the sales pipeline is solid too. I also anticipate that in October, we will have the official inauguration of the site and trust we will be organizing for size visits later on if you'll be interested. Now, on advanced material businesses, we continue to deliver resilient performance. Deliveries both of adhesive materials and specialty materials increased from the previous quarter. Markets in Europe and Asia were solid, whereas the U.S. market was softer. As an example, the label materials demand grew 2 percent year-on-year in Europe, but decreased 2 percent year-on-year in North America. Adhesive materials in this environment continue to take actions to sharpen competitiveness while creating new growth avenues. It is investing to expand coating capabilities in the U.S., to expand in high-margin segments there, while investing in higher-growth regions in Asia. The latest expansion that was announced was a new terminal in Delhi This will be the second terminal in the country beside the already operational one in Mumbai. Specialty materials growth plans are some ways similar as they aim to grow in high-margin markets with new high-margin products. About this specifically, the business continued to accelerate its barrier paper product development pipeline. And this is for the replacement of plastic or multi-layered products in consumers' applications like food or pharma. Just to give you an idea of the level of activity in this space, the business initiated more than 70 new pilot projects with customers in 2026 alone. A relevant feature of the specialty material business is that we have enough capacity available to support a sizable growth in this segment with no need of large-scale investments. On fibers now. And on the global pulp markets, in quarter one, the demand for hardwood pulp was generally robust, while the demand for softwood pulp was softer. The fiber business improved its underlying performance from the previous quarter in both platforms, north and south, supported by an increase of deliveries and a slight increase of the average prices compared to quarter four. Fibre South reported a comparable EBIT of 85 million euros, or 21% of sales in the quarter. As discussed earlier, we expect further cost reductions over this and next year. Moving to Fibre North in Finland, pulpwood market prices stabilized in quarter one. They were about 30% lower than last year. In quarter one, we also started to realize a decline in wood cost. Fibers North comparable EBIT came in at 34 million euros, or 7% of sales. To our communication paper business now. The graphic paper demand in Europe decreased by 4% year on year, and in North America it decreased even further. In a context of challenging paper markets and high energy prices, our communication paper business delivered solid results. Our paper deliveries increased from the previous quarter, and fixed costs decreased following the closures in 2025. Energy costs increased, but the business succeeded well in optimizing its energy consumption in these volatile energy markets. When it comes to our plywood business, markets were stable in quarter one. Demand has been strong in liquid natural gas shipping segment. It has been good in industrial end-use applications and soft in construction-related end-use segments. In this situation, the plywood business continued to perform well, and the result improved from last year. Talking more specifically about this business, we have announced today a demerger plan to separate UPM Plywood into a new independent listed company, as I said before. The new company will be named Visa Group, leveraging its trusted and well-known product brand. The plan is to list the new company on Nasdaq Helsinki. We believe this operation will create a long-term value for the UPM shareholders. Our UPM plywood is a strong business with a proven ability to perform in different market conditions. It supplies high-value added and used segments, has efficient production platform, well-established commercial model, and a strong customer partnership. Separating the plywood business will reinforce its future prospect. As an independent company, Visa Group will be able to pursue own strategic priorities and growth opportunities with increased focus and required agility. At the same time, this simplifies and focuses the UPM business portfolio too. The demerger plan is subject to a shareholder approval in an extraordinary general meeting that will be held by early September at the latest. The plan completion date is 31st of October, 2026, and the first day of trading for Visa Group will be November 2nd. Now, I talked briefly about the communication paper and their performance, but let's talk now about the future of this business and the preparations continue at full speed for the planned graphic paper joint venture. As a reminder, we're planning an independent graphic paper company, owned in equal parts by UPM and SAPI, which would include all of UPM communication paper and SAPI's graphic paper business in Europe. The transaction would create a more efficient, adaptable and sustainable graphic paper business. It will create also a structurally competitive cost base and supply security for the European and global customers. For UPM, the transaction would have a positive impact on profit margins and balance sheet. Yesterday, the European Commission announced the opening of a Phase 2 investigation. This is not unexpected, to the point that we have indicated earlier on and back in December that we were assuming the closure of this deal by the end of this year, pending the necessary approvals. The Phase 2 investigation means that the Commission requires more time to investigate the joint venture. We have openly engaged with the Commission these last months, and we will continue to work with them during the rest of the process. As said, the definitive agreements are expected to be signed during the first part of this year, and the closing of the deal is expected to take place by the end of the year. Now, with these two portfolio initiatives about plywood and communication paper, we aim to change the profile of the company, increasing its growth potential and margins. The largest potential of the new UPM is in decarbonization solutions. Here, we have some unique positions. In energy, we have what data centers and large industrial green investments are looking for. Sites, grid connections, baseload, CO2-free energy. In next-generation renewables with biofuels and biochemicals, we have built positions with unique combinations of feedstocks and innovative IPR-supported technologies to serve markets where both regulations and consumer demand will or are already boosting demand. The recent disruptions in Middle East have also demonstrated the importance of these products, not only for environmental reasons and to reduce emissions, but also for the possibility to reduce the dependency from oil-based equivalents. In advanced materials, we have a strong global position, or strong global positions, of markets that normally grow faster ahead of GDP, and low cyclicality and volatility. Here we seek predictable, profitable, capital-efficient growth, as said earlier on, in high-margin products or high-growth regions. Both development and innovation here play an important role. We want to develop distinctive solutions for end-use segments that want to move beyond plastic. Finally, in renewable fibers, we have one of the most efficient cash engines in the industry. FiberSouth is the world-class low-cost platform, with further cost optimization and capex-efficient debottlenecking ahead. In FiberNorth, we continue to work on cost and fibers differentiation to accelerate performance and cash generation. So the new UPM will have an attractive portfolio focused on these three segments, decarbonisation solutions, advanced materials and renewable fibres. All these businesses operate in growing markets and will accelerate their growth by amplifying our global reach. As it is visible on the chart on the right, growth on this perimeter is not just a future ambition. These businesses have shown a strong track record of realized growth above GDP during the last years already. We will just accelerate it with a sharper focus and targeted investments. Given the scale of the changes ongoing and the number of initiatives we are working on, you may have seen we have created a new position of EVP transformation that will help us in the transition from the current to the new setup seamlessly and effectively. But I'll hand it over now to Tapio for more comments on the results. Thank you, Massimo.

So here we have again, the key figures, first quarter sales was 2,505,000,000 euros down by 5% last year, comparable EBIT 274,000,000 also down by 5% year on year, but in terms of EBIT margin steady compared to the first quarter last year. This is a good result, given that in the first quarter, we were in a world before the globally applied US tariffs and also before significant changes in currency rates, particularly US dollar. Operating cash flow for the quarter was 89 million euros. I would make a couple of notes on cash flow. First, looking back at the end of last year, in the fourth quarter, operating cash flow was 720 million euros, including 416 million working capital release. As I stated then, partly this was seasonal, but to large part due to actions that we have taken to improve our working capital efficiency. Now, working capital increased by 192 million euros in the first quarter compared to 112 million increase in the first quarter last year. Included in the working capital in this quarter, the initial margin requirements of the energy hedges tied up about 60 million euros more than in the first quarter last year. This is related to a higher share of futures contracts that we have made in hedging, including also price movement affecting that in the market. So the rest of the working capital tied up is seasonal in nature and in line with what is typical looking at the past years in the first quarter. This means that the structural improvements in the working capital efficiency that we took in the last year have stayed in place. Further, the first quarter cash flow was temporarily affected by timing of cash flow impact of earlier one-off type items such as restructuring charges, where we have made provisions and now we see the cash flow impact in the cash flow statement. But still looking at the full year 2025, we successfully reduced working capital by 391 million. And looking forward to this year, we continue to work on further reducing working capital during 2026 beyond these seasonal fluctuations. And as a final note, as we have guided, investments were low, and hence, free cash flow was positive, even in a quarter with temporarily low operating cash flow. Then here on the left-hand side, you see the first quarter EBIT comparison to the first quarter last year. Sales prices decreased compared with last year, particularly in fibers and communication papers. On group level, this was offset by lower variable and fixed costs. Changes in currencies had a negative impact. The end result was a 5% decrease in EBIT with unchanged EBIT margin, as mentioned. On the right-hand side, you can see the development compared with the fourth quarter last year. Here, sales prices increased, particularly for energy and also biofuels. This was more than offset by higher variable costs. However, the change in variable costs shown here includes the energy refunds booked in the fourth quarter, so that explains meaningful part of that negative comparison to the fourth quarter. So, part of the price benefit here was seasonally driven by the cold winter, but all of the variable cost increase is also seasonable to this effect of the energy refunds. Volumes increased slightly, fixed cost decreased more meaningfully by 63 million. And part of this again is related to the maintenance in first quarter. Part of it is seasonal and part of it is structural related to restructuring. The big negative bar, other, is mostly related to the fair value increases of forest assets, which again were booked in the comparison quarter for. So then to the guidance and outlook, which are unchanged. Of course, the new conflict in the Middle East has increased uncertainty in the business environment. But given our portfolio, this presents risks, but also presents some opportunities for our businesses. Due to the situation, we are heading towards a period of higher inflation, and therefore margin protection will be a priority for us. But again, particularly when it comes to impacts on energy costs. Our geographic position gives us some resilience here in terms of energy costs and prices in Finland, where we have seen a moderation after the cold winter months. So again, less connected to the impact of the Middle East situation on energy inputs. In the second quarter, the Pietra Saari pulp mill and Olkiluoto 1 and 2 nuclear power plants will have their maintenance shutdowns, and the total impact of the maintenance during the second quarter will be a 55 to 60 million increase in euros compared to the first quarter. Our net debt came down slightly during the first quarter to 2,962,000,000 euros. Net debt to EBITDA ratio remained at around 2.3 times. And we will continue to work on reducing our leverage to within our policy of two times net debt to EBITDA. I already mentioned the investments, which are at a low level, boosting free cash flow. The major investment cycle is over. You'll be seeing the guidance for investments, including maintenance investments during this year. So also looking forward, we can grow in the near term with a relatively low level of capex. So I'll hand over here to Massimo for some summary notes.

Thank you, Tapio. And very quickly, I just want to recall some key points. Quarter one was a good start of the year. Our diversified portfolio and global reach have ensured performance in a volatile situation. We stay focused on performance, cash generation, and margin protection in an environment that has turned inflationary. Meanwhile, we continue to press ahead with transformative initiatives. Today, we announced the demerger plan for plywood. We are moving into the phase two investigation for the graphic paper joint venture. which is a step ahead that we were expecting. So these two initiatives, when completed successfully, will change the profile of the company, increasing its growth potential and margin. And this is the roadmap we keep on following and executing with discipline. With this, I conclude this part, and let's open up for questions.