UPM increased energy asset values by 217%

The Finnish company UPM is mainly known as forest industry player with pulp and paper factories. UPM actually comprises of three Business Groups: Energy and pulp, Paper, and Engineered materials. Past week UPM significantly increased its estimate of fair value of the energy business and lowered its estimate of the same for paper business.

“Energy has been the most profitable Business Area in UPM and is one of our growth businesses. I am pleased that we are now able to show the fair value of our Energy assets in our balance sheet,” says Tapio Korpeinen, CFO.

The reclassification increases Energy Business Area’s capital employed by approximately EUR 1,950 million to approximately EUR 2,850 million. That's whopping 217% increase. In comparison, after the charges, the total capital employed in the Paper business will be approximately EUR 3,400 million. Roughly speaking capital allocation of UPM is 1/3 for paper, 1/3 for energy and 1/3 for the rest.

The hydro and nuclear power assets of UPM were one of the primary reasons we initiated a position in it and continue to view UPM as an interesting play [see earlier blog post from 2011 here].

Disclosure: Long UPM at the time of writing.