Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Jussi Pesonen - President and Chief Executive Officer

Tapio Korpeinen - Chief Financial Officer and Executive Vice President, UPM Energy

Analysts

Mikael Jafs - Kepler Cheuvreux

Lars Kjellberg – Credit Suisse

Linus Larsson – SEB Enskilda

Johan Sjöberg – Carnegie Investment Bank AB

Antti Koskivuori – Danske Markets

Kartik Swaminathan – Bank of America-Merrill Lynch

Karri Rinta – Handelsbanken Capital Markets

Martin Melbye - ABG Sundal Collier

UPM-Kymmene Corporation (OTC:UPMKF) Q4 2013 Earnings Conference Call January 29, 2014 6:15 AM ET

Jussi Pesonen

Ladies and gentlemen, welcome to UPM's fourth quarter result webcast. My name is Jussi Pesonen, I am the CEO of UPM. And I am here with Tapio Korpeinen, our CFO.

Tapio Korpeinen

Good afternoon, everyone.

Jussi Pesonen

We ended our year 2013 with solid Q4 results. In Q4 we were clearly seeing benefits from the improvements and restructuring measures that, those we initiated during the year. We ended the year with the decreased cost and improved efficiency compared with the earlier part of the year.

As a result we achieved our best quarterly business performance in 2013. Our Q4 EBITDA was EUR302 million and operating profit excluding special items EUR207 million. Our net debt decreased by EUR261 million in the quarter and ended the year at EUR3,040 million level. This is the lowest net debt level in UMP in this millennium. The Board has today proposed an unchanged dividend at EUR0.60 per share.

Ladies and gentlemen, this page three summarizes the actions that we were bearing fruit or these were bearing fruit in Q4. In 2013 we made significant capacity reduction between January 2013 and January this year, we closed totally 850,000 tonnes of graphic data capacity 690,000 tonnes of magazine papers and 160,000 tonnes of fine papers.

We also restructured our timber operations as well as our production base in Raflatac, our label stock business. To improve our cost competiveness once again further in the good new level.

In August we shifted to higher gear in UPM's transformation process. We announced the new business structure and three months later in November it was implemented and in operations. In August we launched a short-term profitability improvement program targeting EUR200 million of annualized cost savings. With the new business structure we started to streamline our organization including the global functions that UPM has. Two quarters later into Q4 we have achieved 48% of the targeted savings. As a result of the restructuring in business and streamlining our functions, our number of employees decreased by 1,230 people during the year 2013.

On page four that shows the progress of our EUR200 million profitability improvement program. We have made fast progress with the program and in Q4 it had reduced our cost by EUR24 million compared with Q2. And additional progress from Q3 was EUR11 million. The annualized savings achieved so far are EUR96 million, i.e. 48% of the target. You may recall that we combined the remaining part of the earlier cost saving program that this program show -- these two programs that we started during 2013 were combined in August.

And that we did to have a one figure to you to follow. So far the maturity of the achieved savings, our fixed cost savings coming first from capacity reduction and later also from the streamlining of the group functions. Majority of the savings so far are then also affecting paper. Europe and North America business area savings and functions are of course also affecting our businesses. The fixed cost are EUR134 million lower than that of fixed cost of 2012.

In 2014 we expect also other businesses to improve, more visible in the program. So the program was launched in August and we definitely will start to see savings on other businesses than paper. And I do have full confidence that we achieve our target of EUR200 million by the end of this year.

And now I would like to hand over to Tapio to talk about our financials.

Tapio Korpeinen

Thanks, Jussi. In the fourth quarter we achieved the best business performance during the year 2013. And here I'd like to raise particularly three businesses. First of all Paper ENA Majority of the profit improvement actions that Jussi described are having an impact on Paper ENA. In the fourth quarter the business was able to fully offset the negative impact of 3% lower prices and 5% lower deliveries with fixed and variable cost savings. This was done at the same time as the business was being reorganized and as management moved from Helsinki to Augsburg, Germany.

The result of our actions was maintaining EBITDA at the same level year-on-year. Biorefining benefited from good production in all four pulp mills as-well-as improved performance in our sawn timber business. You probably remember that in October we received an increased production permit in our Fray Bentos mill in Uruguay. This allowed us to increase the mills’ annual production from 1.1 million tonnes to 1.2 million tonnes. Both the Fray Bentos mill and also our [Kaucus] Mill in Finland made new production records last year. As you know we are planning for de-bottlenecking investments in all of our pulp mills. EBITDA increased from last year.

Our plywood business has done a lot of work both in terms of production and cost efficiency and also in terms of the sales strategy of the business. In the fourth quarter the plywood business achieved its best quarterly result since the first half in 2008. Profitability was satisfactory and Raflatac Energy and Paper Asia although energy was clearly negatively impacted by lower hydro volumes and mild weather. Paper Asia was impacted negatively by currency developments in the fourth quarter.

On the following page we see our EBITDA development in the fourth quarter as compared with last year. We had significant headwind from prices and currencies. But this was offset by the EUR39 million reduction in fixed costs and savings in variable costs. In the fourth quarter we had a small negative impact from the fair value changes in unrealized energy hedges which in the new business reporting structure is included in the eliminations line outside the business area results. I believe this improves transparency to the actual business performance.

Delivery volumes had a small positive impact on group level compared with the fourth quarter of the previous year. We had a negative volume impact in Paper ENA, minus 5% as I mentioned earlier and also in energy which was offset by a positive impact in Biorefining, Raflatac and plywood.

If we compare this past quarter to the third quarter the waterfall chart shows smaller variations. The combined EBITDA of the business areas was slightly higher in the fourth quarter compared to the third whereas the Group EBITDA was impacted again by the fair value changes in unrealized energy hedges reported in the eliminations line. We had a seasonal increase in fixed cost as compared to the third quarter offset by seasonal increase in deliveries. Prices and currencies had a small negative impact which was offset by lower variable costs.

Page seven shows the business area. Operating profit figures in the fourth quarter compared to fourth quarter in the previous year and sequentially to the third quarter. In other operations also the fair value change of our forests plays a role. In the fourth quarter we booked a fair value increase of EUR33 million in other operations and bit more than half of that comes from gains on sales of forests. During the full year 2013 we sold a total of 36,000 hectares of forest land in Finland.

Page eight shows our cash flow. Our operating cash flow was in a good level at EUR262 million in the fourth quarter and totaled EUR735 million for the full year 2013. Both figures are somewhat lower than in the previous year. We could not fully recapture during the second half the working capital increase we made or had during the first half even though we released EUR57 million of working capital in the fourth quarter.

We have not produced the inventory. Our inventories and receivables actually decreased during the year. However our payables have decreased as well. We have used or utilized cash discounts obviously where they make economic sense.

In the fourth quarter we also did not receive the energy tax refund of EUR40 million from Finnish customs that normally would release working capital in the later part of the year. This is a Finnish law by which energy intensive industry receives a refund for the energy taxes it has paid in the previous year. There is no dispute that this EUR40 million is UPM’s money. Unfortunately the customs found a technicality in the application handling so they decided to dismiss our application for energy taxes paid in 2012. We have naturally appealed against this decision. As a result we booked a EUR40 million write down of the energy tax receivable in the fourth quarter as a special item.

Page nine shows our net debt and gearing. At the end of the year our net debt went down to EUR 3040 million which as Jussi said is the lowest figure in more than 10 years. Our net debt-to-EBITDA was 2.6 times at the end of the year and our gearing was 41%. Our liquidity totaled EUR1.8 billion at the end of the year and our debt repayments totaled EUR500 million during 2014. I consider that our balance sheet is in good shape.

The following page you can see our cash flow based dividend policy and the dividend proposal for 2013 by the Board of UPM. The minimum dividend by the policy is $0.45 per share. The Board has proposed an unchanged dividend at $0.60 per share. Our 2013 cash flow was somewhat lower than in the earlier three years. We do not however see UPM’s cash flow generation capability as decreased. Our objective is to improve cash flow going forward and we have the actions in place for this therefore we are confident in the proposal for a stable dividend.

Page 11 summarizes our outlook. Overall our business outlook is stable for the first half of the year. We expect stable performance from energy, Raflatac, Paper Asia and plywood business in the first half as compared with the second half of last year.

In Paper ENA our cost structure has definitely improved compared that from one year ago and we expect improved profitability this year compared to last year. When comparing first half performance to the second half performance of 2013 seasonality does have a significant negative impact. Autumn is the high season in our European and North American paper business.

In Biorefining we are starting the year with stable markets. I am sure you are all aware that there are new pulp mills coming to the market during the year which is introducing some uncertainty to pulp prices as the year progresses. Our guidance for capital expenditure in 2014 is $400 million.

Now I would like to hand back to Jussi.

Jussi Pesonen

Thank you Tapio. With the new business structure we are shifting gears in our transformation process.

The next page, page 13 summarizes our Biofore strategy. First we have now adopted a new business structure. With this new structure we aim for a lean organization that enables fast decision making and bear business specific targets. This structure completes the change from the vertically integrated paper company to a company which seeks separate businesses. We aim for top performance in all of these businesses in the respective markets. That is the responsibility of the business area management teams.

To make fast start towards top performance in each business area we launched EUR200 million short-term profitability improvement program that we already discussed. Significant part of the program concerns paper Europe and North America but the program includes actions in all other businesses as well.

I believe that we can improve performance in all of our businesses. Naturally the streamlining we are doing in our global functions will benefit all of the businesses as well. In August we also set ourselves a clear target for our growth initiatives for the coming three years. The portfolio of growth initiatives includes the Biofuel refinery in Lappeenranta due to start next summer. It also includes debottlenecking investments in all of our four pulp mills raising our pulping capacity by 10%, a bit more than 300,000 tonnes. It includes the label paper machine, specialty paper machine in our Changshu mill in China. And finally we are looking for growth options in our Raflatac label stock business.

When all these initiatives are in operations we target an additional EUR200 million of EBITDA condemned. The total remaining CapEx needed for the initiatives is about EUR550 million, so about EUR130 million or 20% has been already used in those investments.

With the new business structure we seek separate well performing businesses, I think that we are better positioned than before to develop the portfolio further. Our aim is to enhance the value of UPM assets. Finally ladies and gentlemen we continue to develop our future Biofore businesses with large target markets and growth potential based on UPM's owned know-how. Biofuels is the first and most important development work at these states, but also Biochemicals and Biocomposites are having promising opportunities.

Ladies and gentlemen to summarize my presentation or our presentation Q4 was a positive end to the year of 2013. Our outlook for the year early part of the year first half of the year 2014 is broadly stable taking in account seasonal variation that is typical for the year. We are well prepared to continue with the implementation of our Biofore strategy.

Before moving to our Q&A session, I like to invite you to our upcoming Capital Markets Day, we will hold a CMD on 11th of March in London and already today you can register on our website or by contacting our IR team. But now ladies and gentlemen, this is the end of prepared part of the presentation and we are ready for your questions. Dear operator, I am handing over to you.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). The first question comes from Mr. Mikael Jafs from Kepler Cheuvreux. Please go ahead.

Mikael Jafs - Kepler Cheuvreux

Yes hello everybody. I have two questions. The first one is relating to your statement Jussi where you talked about UPM having the lowest net debt of this millennium of around EUR3 billion but a strong liquidity position. What would you consider to be an optimal debt level? That's my first question. And then the second question is of course the mandatory one do you point out that the first half of the year is seasonally a bit weaker especially on that paper side and at the same time we know that paper negotiation is ongoing, if you could shed some light on that issue please? Those are my questions.

Jussi Pesonen

First of all I actually when talking about the net debt obviously one of the key cornerstone of UPM is to have a very strong balance sheet and the reason is pretty simple we won't to have a flexibility to act if there is a need for that. But obviously if you take another way around you can always consider what is the net debt against this EBITDA ratio as well whether it has to be below three always.

So basically that is how you can justify that. But basically strong balance sheet is actually good background for being able to really act if needed.

Mikael Jafs - Kepler Cheuvreux

Okay. Thank you.

Tapio Korpeinen

Would you mind actually repeating the second question that you have?

Mikael Jafs - Kepler Cheuvreux

Yeah that the second question was basically regarding now you are talking and highlighting the usual seasonal weakness in Paper ENA on the delivery side at the beginning of the year and then we will know that there are paper price negotiations ongoing. So I just want to -- I know that you do not really comment upon it but if you could shed some light on what you are seeing in the marketplace right now?

Tapio Korpeinen

Well like we said as far as the volumes are concerned the typical similar seasonality as such you would expect to see then obviously again given the economic outlook in the European economy, you can expect some let’s say structural decline to continue in the paper demand as well but hopefully as the expectation are, let’s say somewhat improved economy compared to the last year or previous years in Europe that should have a moderating impact on that front.

As far as let’s say price negotiations are concerned, I would say that our view is probably pretty well in-line with what you have seen commented publicly. I would say some price increases taking place for newsprint, fairly stable prices otherwise. I think we can expect here in Europe.

Mikael Jafs - Kepler Cheuvreux

Okay, many thanks.

Operator

The next question comes from Mr. Lars Kjellberg from Credit Suisse. Please go ahead, sir.

Lars Kjellberg – Credit Suisse

Hey yeah, hi. I have couple of questions starting with Asia, you talked about currency negative impact there. I thought this was mostly a translation issue rather than anything else. Yet you have a meaningful margin contraction on a sequential basis, if you want to comment on that. I am also curious about when you talk about the steps you have in order to improve cash flows going forward, if you want to show some light on that in particular with the backdrop of CapEx actually coming up. I think I will stop there and see if I have any follow-up questions.

Tapio Korpeinen

Well on your question on Asia again let’s say in fine paper prices in Asia we of course have seen some decline there because of let’s say tough competition there also above hardwood pulp price moving down but then also we do have let’s say negative impact from the weaker Asian currency coming particularly the Japanese yen exchange rate as you know has come down.

Lars Kjellberg – Credit Suisse

Okay, right and in terms of your cash flow you have talked about steps to improve the cash flow so do you want to elaborate a bit on what you are doing and how that will go?

Jussi Pesonen

Well again obviously what I am sort of referring to there is the cost actions that we’re taking which let’s say again if you look at our both cash flow and EBITDA during the last year first half vis-à-vis second half there’s a clear difference there and you know going into this year kind of cost performance is obviously than in a much improved shape as compared to where we were a year ago and obviously we expect further benefits or impact from the cost savings that are --or actions that are under implementation. So in that sense let’s say the ongoing profitability of the business or the ongoing cost performance of the business year-on-year is certainly one area and secondly let’s say of course we are continuously working with our working capital performance as well.

Lars Kjellberg – Credit Suisse

Understood. Final question, you mentioned that most of the costing impact you have seen so far they EUR96 million on the run rate base in Paper ENA. Could you shed any light on how the balance of the EUR200 million will be distributed between the different divisions?

Jussi Pesonen

Well obviously Paper ENA still is the biggest business so you would expect that you know now in the past because they kind of started early but also let’s say just given the weight of the business they will have a significant share there. But we are obviously also again having the same type of actions and objectives in all of our other businesses not only that also let’s say in our activities as far as forestry and wood sourcing is concerned, which is in par -- is part of our other operations. So no sort of more exact breakdown than that.

Lars Kjellberg – Credit Suisse

Okay, thank you.

Operator

The next question comes from Mr. Andrea [Greely] from BNP Paribas. Please go ahead, sir.

Unidentified Analyst

Thank you for taking my question. I think it has been partly answered but just maybe would you mind giving a bit of color on the demand decline per grade that you expect in Europe in terms of newsprint in terms of demand decline year-on-year and on magazine what are your expectations in H1 but also for the full year?

Jussi Pesonen

First of all I think that we are not forecasting the decline but you know when looking backwards we are talking about roughly grade-to-grade it has been last year roughly 5% decline, we expect that decline will continue but obviously we do not give any forecast for every grade. But we do not expect that it would be dramatically different than what it was latter part of last year.

Unidentified Analyst

Okay, Jussi, thank you.

Operator

The next question comes from Mr. Linus Larsson from SEB. Please go ahead, sir.

Linus Larsson – SEB Enskilda

Yes, thank you very much. A number of quick questions. Firstly on the pulp capacity addition that you are making, any numbers you could provide for 2014, how much could actually come through already this year?

Jussi Pesonen

No, we do not have that kind of guidance for you, unfortunately.

Linus Larsson – SEB Enskilda

Would say that any of it is coming through just this year or is that only late 2015 and beyond?

Jussi Pesonen

First of all we do have some ongoing kind of improvement programs like in our Paper mill. Obviously the efficiencies will improve and there is already ongoing some of the debottlenecking action, so they will be part of that coming this year and hopefully the efficiencies will improve even further. But there are some debottleneckings that are related to that as well, to this year as well.

Linus Larsson – SEB Enskilda

Good. And then on the CapEx side, you did provide guidance for this year. Do you have any figure for 2015, is that same magnitude or would it deviate materially do you think?

Jussi Pesonen

No, we do not have that kind of guidance for 2015. But if you are looking our kind of three year guidance, it doesn't vary a lot from that. It can vary some but basically those growth initiatives that we have described would actually be on this level.

Linus Larsson – SEB Enskilda

Okay. And one more quick one here on the cash flow for 2014 restructuring costs, any cash charge number that you would like to guide us on, given I mean based on what you have announced so far?

Tapio Korpeinen

No, we don't have any sort of guidance on that.

Linus Larsson – SEB Enskilda

Okay. And then also on the number of projects that you have, could you either confirm or update us on the expected start-up of the Lappeenranta biorefinery, the Changshu PM3 and also maybe Aigrefeuille number three, I understand the last one is a tricky one but if you could help me to any degree there please?

Jussi Pesonen

No, first of all the Lappeenranta biorefining mill will be up and running by the end of June, so the end of this first half. And obviously in Changshu we have not still made kind of main contracts but the start-up will be 2015. Aigrefeuille it is kind of tricky as you said it is TBO and then [inaudible] to guide that and there is no new guidance on that.

Linus Larsson – SEB Enskilda

Okay. Those were my questions, thank you.

Operator

The next question comes from Johan Sjöberg from Carnegie. Please go ahead, sir.

Johan Sjöberg – Carnegie Investment Bank AB

Thank you. Looking at investment in Lappeenranta coming on stream here, can you give some color on how this, the profitability of this investment will look like in 2014, will it have a negative impact in 2014? Yeah some color on that one please.

Jussi Pesonen

We have not actually guided the profitability of what will be the impact on 2014. Obviously did say it's kind of unit that will start up on end of June. So basically next six months it’s in operations. But we do not have the guidance for the profitability.

Johan Sjöberg – Carnegie Investment Bank AB

Can you say something when you expect this investment to be fully up and running

Jussi Pesonen

2015, by the end of 2015. Of course it's still too early to say exactly when it will be full on operations but as soon as possible of course.

Johan Sjöberg – Carnegie Investment Bank AB

Okay. Also looking at your investment in Changshu given your earlier comments on the softness in the Chinese fine paper market I understand it's going to be a swing machine between label paper and fine paper. Do you see some other mix now, have you given any thoughts on that one and also the profitability of this project?

Jussi Pesonen

Yeah first of all the main aim of this machine will be anyway on specialty and label papers. Obviously it has some capability to produce also fine papers but the main aim of the machine is in the label side and obviously that this is a quite a good solid market for coming years but kind of having a flexibility, we are making a stream capability for that machine.

Johan Sjöberg – Carnegie Investment Bank AB

Okay. My final question has to do with your comments upon about the first half you said you thought that business outlook as being broadly stable. How do you define stable do you see that's growing or do you see that being flat, what is your definition here I am just coming back to your earlier comments upon stable overall outlook for basically all business areas.

Jussi Pesonen

Basically we are referring to there is UPM performance.

Johan Sjöberg – Carnegie Investment Bank AB

And when are you expecting your own performance to be growing or you see to be like stable in terms of being flat this -- what do you mean by stable?

Jussi Pesonen

Well again as we have said in the outlook statement also is that in the energy Raflatac pulp business we expect to have a pretty sort of a stable development in the first half as compared to the second half of last year and then let's say paper obviously again improved profitability and improved sort of cost performance but of course we have the typical seasonality in there.

Johan Sjöberg – Carnegie Investment Bank AB

All right. Thank you.

Operator

The next question comes from Mr. Antti Koskivuori from Danske Bank. Please go head.

Antti Koskivuori – Danske Markets

Yes, thank you. Firstly on energy you talked about stable outlook also in that division. If I look at your volumes now in H2, 2013 I understand they were pressured by the hydrological situation here in the Nordic or in the Finland. What do you expect on H1, 2014 on volume side? Do you expect improvement there and if so do you expect changes in the average sales prices? Just how do you see the market stable?

Jussi Pesonen

Well obviously we will see how the sort of weather and hydrological conditions sort of unfold during the year, but during the first half and this winter now. But if you look at last year what's happened there was during, let's say first part of the year we still had quite a lot of water but then in summer time for coming to summer the conditions turned quite dry. So therefore in the second half as you said volumes were impacted by low hydro but then actually towards the end of the year the sort of hydro logical conditions started to move again pretty quickly for the better and so in that sense actually if you look at kind of starting situation now for this year we are back to kind of normal in the sense as far as what hydro availability right now is concerned. So let's say in that sense the situation is better than six months ago.

Then of course again the rest depends on, particularly now during the next few weeks and months it depends on weather what was also obviously impacting volume then in the very end of the process as well in the end of the year the fact that winter came late that actually only just a couple of weeks ago here in the Nordic area. Therefore electricity prices were lower than you would normally expect that this time of the season and therefore also compressing power volumes were down.

So we have a bit colder weather now prices have been showing a little bit more of the normal winter seasonality and rest depends on how this season goes forward. But in any case from a hydro point of view kind of the starting point is better than six months ago.

Antti Koskivuori – Danske Markets

Okay. But should we then expect improving profitability in energy for H1 compared to H2 2013 or is there something else that we should take into account?

Tapio Korpeinen

Well, we will let’s say we have pretty good sort of hedging position in place. So in that sense again from pricing point of view it is fairly stable situation. So in that sense I think it’s now more a question of how strong seasonality we see vis-à-vis kind of the third quarter, fourth quarter now in the third quarter, second quarter.

Antti Koskivuori – Danske Markets

Okay, thank you. The other question upon on Raflatac. I understand you changed a bit the volume comments or the volume comment about the emerging market is now that the growth was there but on a lower level. Was there a change during Q4, 2013 on the demand growth in emerging markets or is this like was this a trend overall the year?

Jussi Pesonen

No, there were no changes during the fourth quarter as well as earlier. Last year the growth has been quite solid not only in the emerging markets but also in the U.S. and Europe so there is no change.

Antti Koskivuori – Danske Markets

All right, thank you. Those were my questions.

Operator

We have a question from Mr. Kartik Swami from Bank of America. Please go ahead, sir.

Kartik Swaminathan – Bank of America-Merrill Lynch

Hi everyone. Thanks for taking my questions. Kartik Swaminathan from Bank of America-Merrill Lynch. My first question is you commented that there is increased competition on the ground in Asia during the presentation in wood free markets. If I could just get a little bit of clarity as to what the reason is. Is it because there is lots of capacity ramping up or a behavior shift or is it the slowdown that’s causing people to get a bit more aggressive on pricing?

Jussi Pesonen

I think that has been quite many years, of course there is a new capacity as well and Japan after the earthquake you know is coming back so basically just kind of that kind of issues as well. So basically not dramatically changed from that what it typically is and has been. For us still you know Changshu is running with very high capacity utilization rates.

Kartik Swaminathan – Bank of America-Merrill Lynch

Okay and given that you also made some comments in the results report on some slowdown in growth in EMG including Asia for label stock. If this is right I am assuming is a possibility you could be pushing back the Changshu project or is there any kind of flexibility in your timeline on that?

Jussi Pesonen

That is not related to any of those kind of market related situations at this point.

Kartik Swaminathan – Bank of America-Merrill Lynch

Okay, my next question was on pulp consumption trends. I think I have read in couple of trade publications there’s been some growth of capacity in market, such as tissue in Asia quite aggressively and new capacity build seems to be being an absolute time. I was wondering if you see that or any other factors as potential for upside risks in pulp consumption and whether we could see prices perhaps bottom faster than expected over summer?

Jussi Pesonen

Of course the pricing remains to be seen but when looking at the pulp demand it is almost now last three years that we have seen a pulp demand growth of 1 million tons a year. Same applies with 2013, 2.5% increased pulp consumption and Asia grew almost 5% actually and China it grew almost 5% last year. So basically yes, there is lot of new hygiene, tissue packaging type of investments that are consuming more pulp and obviously on top of that there will be old worn out straw pulp mill closures in China as well.

Kartik Swaminathan – Bank of America-Merrill Lynch

Okay, actually sorry just a follow up on that point. Do you have any visibility on any other regions seeing some shutdowns in pulp capacity? Hard wood for example is under pressure, maybe soft wood is faring a lot better but is there any kind of movement on that front?

Jussi Pesonen

Not in a big scale you know there are of course always say small pulp mills here and there that are closed but not kind of big trend.

Kartik Swaminathan – Bank of America-Merrill Lynch

Okay, thank you. And my final question is on -- if you could give us a bit of an update on what's happened in the waste paper markets and some clarity on whether rising waste paper prices if it happens say post the Chinese New Year could be helpful for you in trying to raise paper prices?

Jussi Pesonen

Let say there has been -- if you look at the RCP price in Europe, there was some let’s say movement in the second half of the year upwards vis-a-vis the first half, but let’s say nothing dramatic there, still part of the reason or push for price increases for instance in the case of newsprint where recycled fibre is the main raw material today has been also coming from the cost side affecting the margins and therefore the need for increasing prices.

Kartik Swaminathan – Bank of America-Merrill Lynch

Okay. Thank you very much.

Operator

The next question comes from Mr. Karri Rinta from Handelsbanken. Please go ahead sir.

Karri Rinta – Handelsbanken Capital Markets

Yes thank you. Karri Rinta, Handelsbanken. Sorry about getting back to the outlook question and on the wording that you used I just want to make sure that I understand it correctly. You mentioned that five of your six units start the year 2014 with a stable outlook compared to the second half of last year and you say also that business outlook means you had strong performance. So does this mean that you are implicitly guiding for stable earnings for those units in the first half compared to the second half of last year or am I reading this incorrectly?

Jussi Pesonen

Well, again if you read the outlook where we are saying that we have stable performance in Energy, Raflatac, Paper Asia and Plywood there we are comparing the sort of the sequential comparison between H2-H1 and then in paper we don't sort of directly do that because of the seasonality that we have there. That is again we are talking about this not on a business, for business comparison, we are talking about let say the broad effect on UPM level. We don't sort of obviously want to go into a business-by-business commentary here.

Karri Rinta – Handelsbanken Capital Markets

All right. Understood. Then about the Plywood unit, what kind of capacity you have there, how much higher volumes could your current systems support, are you already hitting the ceiling in terms of capacity?

Tapio Korpeinen

Basically we are running at high utilization rate but obviously there are always some ways of actually improving that changing seats and this and that so there is still capacity available for further improvement of the volumes. Unfortunately we are not guiding that potential,

Karri Rinta – Handelsbanken Capital Markets

All right. We'll see what it will be. And then about Lappeenranta again or actually maybe about the potential mix have you sort of reconsidered your growth path there after the EU seems to be changing its rules to some extent that after 2020 there are no longer country specific requirements when it comes to traffic fuels, there seems to be a sort of a broader need to reduce emissions. It’s early days they haven't made the final decision yet but has that made you reconsidered your growth path in that region?

Jussi Pesonen

Not at all actually if you consider that whether CO2 emissions are coming and transportation is one of the big sources and obviously if you have a one target which is the reduction of the Co2 emissions, every country, every government needs to consider how to reduce Co2 emissions in transportation and therefore I think when producing transportation fuels that are reducing the CO2 emissions is quite lucrative market for the future as well but that is good that we have kind of one target and then let see how it goes in the parliament and all of the member states. We have not changed our view.

Karri Rinta – Handelsbanken Capital Markets

All right. Thank you. And then finally you mentioned that strong balance sheet as such is not necessarily the whole point but the flexibility that it gives you. What would you consider using that flexibility for and what would you definitely avoid, i.e you mentioned some opportunities potentially appearing. So what would be the kind of opportunity that you would actually put your balance sheet to work?

Tapio Korpeinen

The balance sheet of course is one type of consideration that we need to have in every circumstances. We have to have a strong balance sheet obviously. If any of the actions whether it's investments or whether it's this and that adds value, makes better profit for UPM then we consider. But there is no kind of broad guidance for what, I stick with my statement I have been always said favoring a strong balance sheet and I still do so. This is not the statement at all actually to change that view. Strong balance sheet is very important for the coming years in UPM to move on.

Karri Rinta – Handelsbanken Capital Markets

All right. Thank you.

Operator

The last question inline comes from Mr. Martin Melbye from ABG. Please go head sir.

Martin Melbye - ABG Sundal Collier

Yes I saw that you sold 36,000 hectors of forest last year which is a significant part of the base you have. What was the priced actually hedged on these assets?

Jussi Pesonen

Tapio might know if there is a new figure for that. I don't think that there is a kind of exact figure and most probably we wouldn't guide that.

Tapio Korpeinen

Yeah we don't give that figure but let’s say that as we have mentioned here part of the value change in the last quarter that we recorded in the increase in fair value for our forests came from the sale of forest land. What that indicates obviously is that the sales price for this area was above the fair value that we had for that in our balance sheet or kind of the average fair value for our forest in Argentina in the balance sheet. So the price was attractively sold 36,000 hectares in 2013, we sold 31,000 hectors the previous year.

This is a strategy that we have in place as our footprint in Finland has changed. Parts of the forest land that we own in Finland are in a sense less strategic for us and we believe that we get the best value per hectare by selling this forest land in parts of some thousands of hectares and this has worked well for us and we will continue on that program.

Martin Melbye - ABG Sundal Collier

Okay. Is it possible to say how much this impacted the cash flow for the year?

Tapio Korpeinen

No, we don't give that breakdown.

Martin Melbye - ABG Sundal Collier

Okay, good. Thank you.

Operator

We have a new question, comes from Mr. [inaudible] Capital. Please go ahead sir.

Unidentified Analyst

Hi, thank you. Just wanted a follow-up I guess on the Martin’s question there and put that in conjunction with your thoughts around your current business portfolio I know we had some sort of snippets in there in the press from your chairman around industry consolidation not being entirely to easy. What's your sort of current thinking on I guess on the various units on the business portfolio going forward?

Jussi Pesonen

Obviously like already said that in these six business areas we do not have any holy cows, so if there will be a kind of adding value propositions or kind of ideas we are prepared to have a discussion. Obviously there are needs for the consolidation like in the paper business. There is a need for consolidation, when going forward and if it makes sense for UPM we'll be part of that.

Unidentified Analyst

And I guess the need for consolidation papers I mean that's been talked about for reasonable while and I guess that last big change there was your acquisition of Myllykoski. It seems that I guess the consolidation there is just not quite as easy as it looks on paper or what I guess where are you sort of there in the process?

Jussi Pesonen

First of all, I guess that it is what we have seen over the years, our Myllykoski acquisition but then all of the restructurings that has happened in the industry they are really good for the industry and may be highlights also need for the consolidation. When you have the big system like in UPM you are able to take kind of the cost reduction initiatives as we have been doing but many of our competition cannot and maybe that actually starts to highlight also importance of the consolidation. Like I am always saying I firmly believe that, that is needed in this industry, but it needs to add value for UPM to be part of it.

Unidentified Analyst

Okay, thank you.

Operator

There are no further questions at this time. Please go ahead speakers.

Jussi Pesonen

Thank you, ladies and gentlemen. It was absolutely great to have you this afternoon in our Q4 results. Thank you and have a nice day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: UPM-Kymmene's CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts