For his “consistent delivery in providing shareholders stable returns in a volatile market,” as one nominator wrote, UPM’s Jussi Pesonen has been named the Fastmarkets RISI 2019 European CEO of the Year. Pesonen is expected to accept the award at the Fastmarkets RISI European Conference in Vienna, Austria, March 11-13.
The European CEO of the Year Award is nominated by a group of investment analysts, industry consultants and commentators covering the European and global pulp and paper industry. Pesonen received high praise from nominators. “His diligent efforts (resulted) in the transformation of UPM from a business that was primarily focused on paper production to one that has broadened its reach across the paper and pulp market,” wrote one analyst. “To deliver on such a long-term project with such clear mindedness is admirable. He should be seen as a leader of the industry that others can learn from.”
Under Pesonen’s solid leadership, the Finnish giant continues to succeed in what it calls “the forest-based bioindustry.” PPI Europe caught up with Pesonen to discuss the future of the company, the graphic paper market and the Uruguay pulp mill project.
PPI Europe: UPM has been growing for many consecutive years now. Do you expect the company to continue to deliver stable growth in 2019?
Pesonen: UPM reached record earnings in 2018 and I’m expecting business performance to continue at a good level in 2019. Global economic growth is estimated to continue in 2019, although at a slower pace than in 2018. But there are significant uncertainties related to this—for example, trade negotiations between China and the US, growth in China, the undefined nature of Brexit, and political uncertainties in several countries. These may have an impact on global economic growth and on UPM’s product and raw material markets during 2019.
Besides what has been already announced, is there any new project or sector you are currently investigating for a potential investment? In which UPM business(es) do you see more growth potential?
Pesonen: Innovation and continuous exploration of new growth opportunities are central to UPM’s operations. Our main growth prospect is the possible new pulp mill in Uruguay. Urbanization and the growing global middle class provide the pulp business with good long-term growth opportunities in the future as well.
Other attractive growth opportunities have been identified in areas where our renewable products can replace fossil-based materials. UPM Biochemicals is continuing the basic engineering work for the potential first industrial-scale biochemicals refinery in Germany. In UPM Biofuels, we have completed the Environmental Impact Assessment for a possible biofuels refinery in Kotka, Finland.
UPM Biorefining has now overtaken UPM Communication Papers in terms of operating profit. Do you think other of your businesses will surpass UPM Communication Papers in terms of returns in the foreseeable future?
Pesonen: All UPM businesses do their best to grow and to improve their performance. As the businesses operate either in totally different sectors or different parts of a value chain, comparing them this way internally to each other is not relevant. Different markets develop differently, and it only makes sense to compare the results of each business within its respective sector.
How important is the graphic paper sector for UPM at this point?
Pesonen: UPM Communication Papers accounts for about 45 percent of our total sales and it is a major contributor to our cashflow. So, it is a very important and well-managed business within UPM. Despite the declining demand, we believe—and have proven—that it is possible to be profitable in this business too.
With paper prices increasing and graphic paper demand declining at a steady pace, what do you think will be the future of the graphic paper industry in the next five years?
Pesonen: Paper prices at any given time are highly indicative of the underlying supply-demand balance, which may fluctuate for many reasons. Conclusions based on short-term price changes cannot be made. In the longer run, decline in paper consumption will continue, which will eventually result in capacity closures. Where and by whom depends on the competitiveness of the companies and that of their mills. Also, the operating environment of various countries has a role to play.
Once the supply/demand balance turns in favor of buyers, is UPM ready to either close or convert any of its graphic paper machines in Europe?
Pesonen: UPM has a strong performance culture. That means also that we must be prepared to take necessary actions to safeguard our ability to deliver results. Conversions and closures are part of our toolbox. It should be noted, though, that the closure of a paper machine or a mill is the last resort and counterintuitive to our growth mindset.
Is UPM interested in entering the packaging paper market at all?
Pesonen: Packaging materials are an important customer industry to our pulp, specialty papers, and label businesses. We find them to be the attractive part of the packaging value chain for us.
Are you worried about a “no-deal” scenario for Brexit? And what measures will the company take in case this happens?
Pesonen: Realization of the “no-deal” scenario would be a great loss for all, and it would have an adverse impact on Europe in many ways. As for UPM, we also have production in the UK, which would be an advantage for us in this situation. We have also prepared for various scenarios by adjusting our raw material and finished goods stocks to ensure our service level to our customers.
You are considering building a new pulp mill in Uruguay. How would you evaluate the steps taken so far by the Uruguayan authorities to address your requirements for moving ahead with such a project? Can you add any details to the prospective project’s current status or updates on the timeline?
Pesonen: Co-operation with the Uruguayan government and authorities has been good. We have made considerable progress and now we expect tangible steps in the implementation of the infrastructure that needs to be implemented before we can start our normal investment decision process. As for the timeline, there is nothing new to say at this point.
To learn more about CEO Jussi Pesonen and UPM, see the upcoming feature on this award in the March/April issue of Paper360°.