“The last quarter of 2013 was a satisfactory conclusion to a year which started off with a brisk headwind. In 4Q we achieved our best quarterly business performance in 2013. Part of this was due to seasonal factors, but a significant part comes from the wide range of improvement efforts we made throughout the year. Operating profit excluding special items was Euro 207 million. Due to strong operating cash flow we were able to reduce our net debt by Euro 261 million during 4Q.
We are very pleased that UPM Biorefining, UPM Plywood and UPM Paper ENA (Europe and North America) were able to achieve a significant improvement in their financial performance with proactive internal measures.
Many pulp mills in the Biorefining business area were able to break their production records last year which boosted our pulp volumes. The granted permission to increase pulp production in Uruguay also positively impacted the result of the final quarter in 2013.
Plywood performance has improved consistently, and in 4Q achieved its best quarter since 2008. In Plywood, both the sales strategy as well as the production efficiency have been revised with excellent results.
In Paper ENA decreasing volumes and prices as well as unfavorable currencies were sources of serious headwind throughout the year and called for strong improvement actions. We responded with heavy cost savings both in the business and in the supporting functions. In 4Q Paper ENA managed to restore its profitability to the level of the previous year. It is fair to say that at the end of the year the business has a significantly more competitive cost structure than in early 2013.
UPM Energy suffered from mild weather and lower hydropower volumes in Q4 but was nevertheless able to maintain unchanged average electricity prices. In UPM Raflatac the sales development was positive, particularly in the growth markets. Despite challenging currency development in Asia, the performance of UPM Paper Asia was satisfactory.
We made good progress with our Biofore strategy in 2013. A key milestone was the implementation of the new business structure in November. The new organisation has started off well and we expect the new structure to sharpen our operational focus further in each business.
Simultaneously with the new structure we announced a short term profitability improvement programme targeting EUR 200 million cost savings by the end of 2014. Implementation of the programme has proceeded fast and in Q4 we had achieved 48% of the targeted savings.
I’m proud of the change readiness that UPM’ers have shown in the face of these changes. This gives us confidence in proceeding further with our profitability and growth initiatives. Over the coming three years, we have set ourselves clear targets for our growth initiatives in biofuels, woodfree speciality papers in China, label materials and pulp production. In parallel with this process we also seek to simplify our business portfolio. Our goal is to enhance the value of UPM businesses,” says Jussi Pesonen.
Outlook for 2014
Growth in the European economy is expected to remain low in 2014, but improve from last year. Growth in the US and in the developing economies is expected to continue to outperform Europe.
This environment is expected to be supportive for the global pulp and
label materials demand, as well as paper demand in Asia.
The slight improvement in the European economy may moderate the negative demand
development seen in the European graphic paper market in the past two years and
stimulate European demand for wood products. The current hydrological situation
in Finland is close to the
long-term average level, and the forward electricity prices in Finland for H1
2014 are somewhat lower than the realised market prices in H1 2013.
UPM’s business outlook for H1 2014 is broadly stable.
In H1 2014, UPM’s performance is expected to be underpinned by a stable
overall outlook for UPM Energy, UPM Raflatac, UPM Paper Asia and UPM Plywood,
as compared to H2 2013.
Profitability in UPM Paper ENA is expected to improve due to the
on-going cost reduction measures. In H1 2014 compared to H2 2013 however,
performance will be negatively impacted by lower delivery volumes, including
seasonal factors.
UPM Biorefining is starting the year in a stable market. Capacity additions in the global pulp market may impact the pulp market balance unfavourably during 2014, depending on the timing of the new start-ups.