- Profitability improved significantly YoY; however sequential profitability came under pressure due to heavy maintenance and strikes in Finland: Sales softened by -4% QoQ (flat YoY). Meanwhile, EBITDA slumped -27% QoQ (+41% YoY) with an EBITDA margin of +14.1%. Gearing increased with net debt up +20% QoQ and net debt/EBITDA now 1.6x. Encouragingly, their major investment cycle is coming to an end.
- Key developments during the second quarter: Underlying consumer demand is moderately improving. However, demand development moderated in the second quarter after the strong first quarter. Global pulp markets were further tightened by supply-side restrictions. Meanwhile, UPM’s Paso de los Toros pulp mill reached nominal capacity before its first maintenance shutdown in June.
- UPM Fibres profitability significantly improved as Paso de los Toros reached full capacity (54% of EBITDA): Sales increased by +15% QoQ (+30% YoY), pulp deliveries up 16% YoY (-5% QoQ) as global demand was good and varied depending on end-uses. The average realised pulp selling price increased by +21% QoQ (+12% YoY).
- UPM Communication Papers profitability weakened QoQ due to lower volumes (14% of EBITDA): Sales for the segment slumped by -22% YoY (-11% QoQ). This was mainly driven by lower volumes (-10% QoQ & -11% YoY) after restocking in Q1 and the strikes in Finland. This compares to European market demand, which improved by +4% YoY. Meanwhile, average pricing softened by -1% QoQ (-12% YoY). The EBITDA margin came under pressure to reach 10.8% as fibre cost increases materialised quicker than price increases.
- UPM Communication Papers continues to reduce capacity (-12%, equal to 610Kt/yr) with customer demand and ensure competitiveness: UPM plans to close their Hürth newsprint mill (-330Kt/yr) and one fine paper machine (PM3: -280Kt/yr) at Nordland Papier in Germany latest by the end of 2024. The planned actions are estimated to result in annual fixed cost savings of €45mn.
- UPM Raflatac deliveries recovered from last year’s lows as European market demand recovered, up 23% from last year, but down -4% from Q1 (16% of EBITDA): Successful margin management meant the EBITDA margin came in at 12.6%, up 251bps YoY, but softer QoQ (-208bps). The segment has accelerated growth in Graphics by acquiring Grafityp, with typical applications such as indoor and outdoor advertising, signage and vehicle wrapping. The Graphics global market size is c.€4bn and grows around 4-5% pa.
- UPM Specialty Papers delivered good results despite higher pulp prices (14% of EBITDA): Sales increased by +5% YoY (-8% QoQ), with deliveries recovering from last year (+9% YoY; -7% QoQ), especially in specialty grades, while demand for fine papers in Asia stabilised. Selling prices for the segment remained soft YoY (-4%), while broadly stable QoQ. EBITDA slumped -19% QoQ (+164% YoY) with an EBITDA margin of 15.8%.
- Guidance remains unchanged for FY 24e: FY 24e EBIT expected to be higher YoY, supported by higher delivery volumes, the ramp-up and optimisation of the UPM Paso de los Toros pulp mill, and lower fixed costs. Demand for many UPM products is expected to gradually improve as the destocking seen in 2023 is over. The market conditions for renewable fuels are expected to be weaker than last year. Meanwhile, H2 EBIT is expected to be higher HoH driven by UPM Fibres, with the full pulp capacity available and pulp price levels starting at a higher level than at the start of the year. No major maintenance shutdowns are scheduled for H2 and the timing of the annual energy-related refunds is expected to support the result in Q4.
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