UPM Half-Year Financial Report 2022: UPM delivers record Q2 earnings with successful margin management in exceptional business environment

Q2 2022 highlights
*Sales increased by 7% to EUR 2,562 million (2,384 million in Q2 2021)
*Comparable EBIT grew by 26% to EUR 387 million, 15.1% of sales (307 million, 12.9%)
*Operating cash flow was EUR -879 million (308 million), impacted by cash flows from energy hedges. Other operating cash flows were largely as expected
*The rise in energy futures prices was unprecedented, as was the related short-term cash flow impact from energy hedges. Respectively, it indicates strong earnings potential of UPM Energy
*Sales prices increased in all business areas and more than offset the negative impact of higher variable costs
*Cash funds and unused committed credit facilities totalled EUR 1.5 billion at the end of Q2 2022
*Transformative growth projects in Uruguay and in Germany proceed well
*In May, UPM announced the acquisition of AMC AG to accelerate growth and enter new product segments in UPM Raflatac
*In June, UPM announced the sale of the Steyrermühl site in Austria to secure competitiveness and adapt newsprint production to the long-term market development

H1 2022 highlights
*Sales increased by 10% to EUR 5,069 million (4,618 million in H1 2021)
*Comparable EBIT increased by 13% to EUR 664 million (586 million), and was 13.1% (12.7%) of sales
*Operating cash flow was EUR -867 million (526 million), impacted by cash flows from energy hedges in the highly exceptional energy markets
*Net debt increased to EUR 2,688 million (750 million) and net debt to EBITDA ratio was 1.42 (0.49). A significant part of the increase in net debt is temporary, due to the cash flow impacts of energy hedges and future energy generation
*UPM decided to suspend its deliveries to Russia, purchasing of wood in Russia and the UPM Chudovo plywood mill operations
*The strike in Finland affected production and delivery volumes especially in the pulp, paper and biofuels businesses. Estimated full-year earnings impact is not material
*In April, UPM and Paperworkers’ Union agreed on first-ever business-specific collective labour agreements and the strike ended at UPM mills in Finland

Jussi Pesonen, President and CEO, comments on the Q2 results:
“UPM delivered record Q2 earnings driven by successful margin management in exceptionally tight markets for our products. All our businesses reported strong earnings amidst a volatile environment of rapid inflation in input costs and challenging supply and logistics chains. In addition, customer deliveries from our Finnish mills started smoothly after the end of the strike in late April. As a result, our quarterly sales increased by 7% to EUR 2,562 million, and comparable EBIT increased by 26% to EUR 387 million. This was a great achievement taking into account that during the first half we only had one month of normal full production. For the full year, we expect to reach a new record of annual earnings.

Operating cash flow was EUR -879 million and our net debt at the end of the quarter was EUR 2,688 million. Cash flow was significantly impacted by the timing of cash flows from our energy hedges during an unprecedented rise in energy futures prices. Due to the nature of our hedging activity, this cash flow is expected to reverse in the future, meaning that a significant part of the increase in net debt is temporary. Our financial position remains strong, with cash funds and unused committed credit facilities totalling EUR 1.5 billion at the end of Q2. We further improved our liquidity in July, with two new credit facilities totalling EUR 500 million. This gives us a solid base to push on with ongoing transformative growth investments and face the unpredictability of the operating environment.

Market fundamentals for UPM Fibres were strong in Q2, for both pulp and timber. Production at the Finnish pulp mills started well after the business specific collective labour agreements were signed in April and two major maintenance shutdowns were completed.

UPM Communication Papers had a strong quarter. Demand for graphic papers was good and price increases exceeded the rise in input costs, with the cost of energy posing a particular challenge. During the quarter we announced the sale of UPM Steyrermühl, in Austria. This is another step in securing competitiveness of the Communication Papers business, adjusting our newsprint production to the long-term market development. Newsprint production at the mill will stop at the end of next year.
details at: https://www.upm.com/about-us/for-media/releases/2022/07/upm-half-year-financial-report-2022-upm-delivers-record-q2-earnings-with-successful-margin-management-in-exceptional-business-environment/

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