UPM-Kymmene Corporation Interim Report January-June Jussi Pesonen, President and CEO July 28, 2005

Transcription

1 UPM-Kymmene Corporation Interim Report January-June 2005 Jussi Pesonen, President and CEO July 28, 2005

2 Contents Business drivers Financials January-June 2005 Current topics Market outlook UPM 2

3 Business drivers

4 Business drivers - Advertising pages and direct mail Consumer magazines 1H 2005 vs 1H 2004, % Newspapers 1H 2005 vs 1H 2004, % Direct mail Items USA UK Germany -5% France* -4% UK UPM % +2% +2% Germany +4% France* -9% USA 1H '05 vs. 1H '04 UK Q1 '05 vs. Q1 '04 Germany Q1 '05 vs. Q1 '04-8% +0% +4% Sources: PIB, VZD, Nielsen, Secodip, Brad'n Rate, UPM * France Jan-May '05 vs. Jan-May '04. Germany and UK nnewspapers excl. classified advertising

5 Business drivers - Advertising expenditure in printed media Annual global change in advertising expenditure, % 14 % 12 % 10 % 8 % 6 % 4 % 2 % 0 % -2 % -4 % -6 % -8 % E Newspapers, Zenith April '05 Magazines, Zenith April '05 Newspapers, Zenith June '05 Magazines, Zenith June '05 Direct Mail, Zenith December '04 Source: Zenith Media December 2004, April and June 2005 UPM 5

6 Business drivers - Total paper demand in North America Magazine papers 1H 2005 vs 1H 2004, % '000 tons % +5% +2% Coated fine papers % +6% -4% 1H 2005 vs 1H 2004, % '000 tons IQ IIQ IIIQ IVQ IQ IIQ IIIQ IVQ IQ IIQ IIIQ IVQ '03 '04 '05 Sources: PPPC, RISI, UPM UPM 6

7 Business drivers - Total paper demand in Europe Magazine papers 1H 2005 vs 1H 2004, % '000 tons % +6% -1% Fine papers (coated + uncoated) 1H 2005 vs 1H 2004, % '000 tons % +8% +1% 0% (1 (1 June 2005 is UPM's estimate Newsprint % +5% +2% 1H 2005 vs 1H 2004, % '000 tons Sources: Cepiprint, Fine papers Cepifine + UPM IQ IIQ IIIQ IVQ IQ IIQ IIIQ IVQ IQ IIQ IIIQ IVQ UPM '03 '04 '05 7

8 Business drivers - UPM's total paper deliveries Magazine papers % +6% -11% 1H 2005 vs 1H 2004, % '000 tons Fine and speciality papers 1H 2005 vs 1H 2004, % '000 tons % +9% -9% 500 Newsprint % +7% -6% 1H 2005 vs 1H 2004, % '000 tons IQ IIQ IIIQ IVQ IQ IIQ IIIQ IVQ IQ IIQ IIIQ IVQ UPM '03 '04 '05 8

9 Business drivers - Paper price development in Europe Euro / ton Newsprint Coated magazine paper Uncoated fine paper Uncoated magazine paper Coated fine paper Source: PPI UPM 9

10 Business drivers - Paper price development in USA USD /mt. ton Uncoated magazine paper Coated magazine paper Coated fine paper Source: RISI UPM 10

11 Coated magazine paper price in Euro, development in Germany and USA Euro/m.tons Germany USA Source: PPI UPM 11

12 Business drivers - Global chemical market pulp price USD/t Northern Bleached Softwood Kraft Northern Bleached Hardwood Kraft USD 592 USD 594 Source: FFIF July 26, 2005 UPM 12

13 Business drivers - Recycled paper price 200 Euro/tons in Germany Source:EUWID UPM 13

14 Summary on market drivers ADVERTISING Favourable development continues in USA. Slow economic growth in Europe is reflected in advertising. Development has been heterogeneous in the markets. Advertising in newspaper markets has been doing well. Forecasts reconfirm positive advertising expenditure outlook. PAPER MARKET DEMAND AND UPM'S PAPER DELIVERIES In Europe, paper demand has remained at the good level of 1H In USA, magazine paper and coated fine paper demand has decreased slightly. UPM's 1H '05 paper deliveries were 9% below last year, mainly due to the labor dispute in Finland. Customer and producer paper inventories are low. UPM 14

15 Financials January-June 2005

16 Quarterly summary II/05 I/05 IV/04 III/04 II/04 I/04 Earnings per share, Sales, M 2,253 2,278 2,423 2,449 2,497 2,451 Operating profit*, M Profit/loss before tax*, M Deliveries,1000 t 2,343 2,478 2,814 2,663 2,681 2,634 Negative impact of labour dispute on Q2 05 pre tax results approximately 175 million *excluding non-recurring items UPM 16

17 Segment results* M Magazine Papers Newsprint Fine and Speciality Papers Converting Wood Products Other Operations Forestry department, Finland Energy department, Finland Operating profit Share of results of associates and joint ventures Exchange rate and fair value gains and losses Interest and other finance costs, net Profit/loss before tax 4-6/ /2004 Change *excluding goodwill amortization (2004) and non-recurring items UPM 17

18 Cash flow analysis M Cash flow from operations, before change in working capital Change in working capital* Cash flow from operations, as reported Capital expenditure Disposals and other investing cash flows Dividend paid Net cash before financing 1-6/ /2004 Change *The year 2004 includes -179 million arising from the termination of the asset securitization programme UPM 18

19 Operating profit margin by division 1 (2) % 15,0 Magazine Papers Newsprint Fine and Speciality Papers 10,0 5,0 0,0-5,0 6,2 2,1-0,3 3,1-3,4-10,0-6,8 I/04 II/04 III/04 IV/04 I/05 II/05 *excluding goodwill amortization (2004) and non-recurring items UPM 19

20 Operating profit margin by division 2 (2) % Converting 5 5,6 3,8 Wood Products 0 3,3 1, I/04 II/04 III/04 IV/04 I/05 II/05 *excluding goodwill amortization (2004) and non-recurring items UPM 20

21 Value creation % * incl. non-recurring items ** excl. non-recurring items *** WACC pre tax ROCE* ROCE** WACC*** FAS IFRS ~9% 4.4% 2.8% /05 UPM 21

22 Gearing ratio and net interest-bearing liabilities % Gearing ratio FAS IFRS Target maximum 100 % Net interest-bearing liabilities million FAS IFRS % , June, June,30 05 Ratings: Moody s Baa1 (negative), S&P BBB (stable) UPM 22

23 Capital expenditure M FAS IFRS Capital expenditure 1-6/05 Changes in production and new production lines Maintenance and replacement expenditure Depreciation excl. amortization of goodwill / 05 UPM 23

24 Variation analysis Earnings per share* H vs. H EPS EPS 1-6/2004 EUR 0.30 Paper prices 0.11 Paper deliveries Paper, costs Other 0.05 Financials, net Income taxes 0.01 EPS EPS 1-6/ ,30-0,20-0,10 0,00 0,10 0,20 0,30 0,40 *excluding goodwill amortization (2004) and non-recurring items UPM 24

25 Return on equity % 25 FAS IFRS Minimum target 10 year bond +5% neg /05 as reported excl. non-recurring items UPM 25

26 Current topics UPM 26

27 Current topics Labour disputes Finland Miramichi, Canada Major investments and restructurings Capital expenditure Start-up of Changshu new fine paper machine UPM Rafsec's RFID production facility investment in USA Restructurings Sale of Loparex Group Buying out Chudovo minority shareholders UPM 27

28 Labour disputes - Finland Labour disputes lasted 47 days from 15 May 30 June 2005, and were preceded by several illegal strikes Production start-up after settlement was smooth, deliveries normalized within two weeks The new three-year collective labour agreement wage increase in line with collective agreement allows production at Christmas and Midsummer allows outsourcing by local agreement allows flexible work hour arrangements by local agreement We will have to consider how to decrease the country risk in paper grades in which the production depends on Finland UPM 28

29 Labour disputes- Miramichi LWC mill, Canada - on strike since December 16, 2004 Miramichi is a high cost operation. To have a future within UPM, the mill needs to achieve a step change in the cost structure, including significant improvement in flexibility and productivity UPM has retabled its April 8th offer for a settlement and requested a vote offered financial terms meet or exceed the so-called Eastern Canadian pattern UPM considers different options mill's future within UPM Group is now being evaluated with an accelerated timetable UPM 29

30 Major investments - Changshu PM1 start-up in China on May 24, 2005 Successful start-up of the new 450,000 tons p.a. fine paper machine UPM 30

31 Major investments - UPM Rafsec in the USA A new state-of-the art RFID tag production facility in Fletcher, North Carolina in the USA Specialization in high-quality UHF (ultra high frequency) tags Part of a USD 24 million investment program Annual capacity of one billion RFID tags when investment fully implemented Start-up of the first phase during Q3/2005 UPM 31

32 Sale of Loparex Group and acquisition of Chudovo Sale of Loparex Group UPM will focus on developing its core converting businesses The sale price of Loparex Group is approximately EUR 230 million Buying out ZAO Chudovo-RWS minority owners An important step in developing UPM's operations in Russia UPM bought out 40% minority shareholding in Chudovo. After the transaction UPM owns 100% of Chudovo UPM has been engaged in Chudovo since the establishment of the company in 1988 The purchase price was EUR 12 million UPM 32

33 Market outlook UPM 33

34 Market outlook Demand for papers during the second half of the year is predicted to be good, as during this period last year. Average paper prices are forecast to be higher. Demand for converted products is expected to remain good. Plywood continues to be in good demand. Markets for sawn timber continue to be oversupplied. Following the signing of the labour agreement, production in Finland was resumed well and customer deliveries returned to normal within two weeks. Paper stocks are currently low. The order intake has been strong and the market is expected to be tight for magazine paper, newsprint and speciality papers. UPM 34

35 Summary Paper demand is at a good level, inventories are low. Negotiations on price increases, postponed due to the labour dispute, are currently being resumed. In converting businesses UPM sees growth opportunities in Raflatac's labelstock and Rafsec's RFID businesses. In wood products a key challenge is to improve profitability of the sawmilling. We have succeeded in keeping our cost development under control. Profit improvement continues to be number 1 priority UPM 35

36 Forward-looking statement It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by "believes", "expects", "anticipates", "foresees", or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the Group's targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group's patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group's products and the pricing pressures thereto, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group's principal geographic markets or fluctuations in exchange and interest rates. UPM 36

37 UPM 37