Jul 27, 2023

UPM: graphic paper decline "normalising"

Jo Francis Wednesday, November 4, 2020

Label material sales are up at UPM but graphic paper deliveries were down 21% in Q3 due to Covid-19. Separately the group said it had received "quite a lot of interest" in its up-for-sale Shotton mill in the UK.

The global giant in pulp, paper and bio-materials posted sales down 19% at €2.028bn (£1.82bn) in Q3 "due to lower deliveries of graphic papers and lower pulp and paper prices".

Like-for-like EBIT was down 37% at €215m (2019: €342m).

President and CEO Jussi Pesonen said that UPM had "delivered satisfactory performance under the highly exceptional circumstances resulting from the Covid-19 pandemic".

"Despite weak paper markets and low pulp prices, our profitability improved slightly compared to the previous quarter, our cash flow recovered, and our EBIT margin remained above 10%," he stated.

UPM said that Covid-19 restrictions had "significantly decreased demand" for graphic papers, which were most severely affected, while demand for self-adhesive labelling materials and specialty papers increased during the lockdowns.

"As expected, demand in Q3 partly recovered compared to the lockdown part of Q2, but still remained low. Market prices decreased by 5%. However, thanks to the ongoing cost reduction measures and improved efficiency, the business was able to turn back to positive EBIT in Q3," UPM stated.

Pesonen said that labels wing UPM Raflatac, UPM Specialty Papers and UPM Energy "continued to perform well".

"Our financial standing is strong and puts us in a unique position to proceed with our transformative projects with determination," he said.

UPM has taken out 1.2m tonnes of paper production in the last 12 months. It shut down a paper machine at its Rauma mill in Finland and closed its Chapelle newsprint mill in France after failing to find a buyer for the operation.

It will also shutter the Kaipola mill in Finland by the end of the year, taking out 720,000 tonnes of graphic paper capacity – 450,000 tonnes of newsprint and 270,000 tonnes of coated mechanical paper.

Asked about the likelihood of further closures, Pesonen commented: "Everything is related to paper demand, especially in Europe. In May we saw a 40% decline in demand year over year, in June it was 25%, July 22%, August 19% and September 13% – so we have seen the normalisation in that as well," Pesonen explained.

"Quite firmly I can say, we take actions when there's a need to take actions. It is what I have been saying for the last 15 years. I do not remember a year after 2006 when UPM has not closed capacity. In all times you need to take care of cost competitiveness," he stated.

However, Pesonen also pointed out that not all the measures were focused on graphic papers. "We take actions in all businesses and all functions. Every corner of UPM is contributing to improving our cost competitiveness," he noted.

UPM's decision to sell its Shotton newsprint mill in Deeside was announced over the summer, as part of measures aimed at saving €75m a year.

Pesonen said talks on the Shotton sale were at "an early stage".

"We do have interested parties already. Quite a lot of interest," he said.

The Shotton sale is conditional on its paper machine being converted to non-newsprint grades.

Shotton is an integrated facility that manufactures recycled newsprint. It employs around 200 staff and encompasses a materials recycling facility, paper machine, and a biomass combined heat and power unit.

It has an annual production capacity of 260,000 tonnes.

UPM's other UK mill is Caledonian Paper in Scotland, which makes LWC magazine papers.

Regarding the outlook, UPM said that the Covid-19 pandemic, related containment measures and the economic downturn continued to cause "high uncertainty" for the second half of 2020.

Last month UPM upped its production of graphic paper sheets with a fourth sheeting line at its Kymi mill going into production.

Label material sales are up at UPM but graphic paper deliveries were down 21% in Q3 due to Covid-19. Separately the group said it had received "quite a lot of interest" in its up-for-sale Shotton mill in the UK.