UPM-Kymmene Corporation Jussi Pesonen CEO UBS Global Paper and Forest Products Conference New York September 19, 2006

Transcription

1 UPM-Kymmene Corporation Jussi Pesonen CEO UBS Global Paper and Forest Products Conference New York September 19, 2006

2 Contents UPM in brief Business environment UPM's positions for sustainable profitability Investments in competitive units and growth businesses Summary UPM 2

3 UPM IN BRIEF

4 UPM IN BRIEF Sales 9,348 million in 2005 Wood Products 13% Other 5% Converting 14% Magazine papers 32% Fine and Speciality papers 23% Newsprint 13% Papers 68% UPM 4

5 UPM IN BRIEF UPM's market positions Businesses UPM's market positions Europe Global Paper Magazine papers 1 1 Newsprint 2 5 Fine papers 3 5 Label papers 1 1 Packaging papers 3 Converted products Label materials 2 2 Industrial wrappings 1 Wood products Plywood 1 Sawn timber 4 UPM 5

6 UPM IN BRIEF Cost structure 2005 (excl. depreciation) Other costs19% Personnel expenses 19% Other raw materials 11% Recovered paper 3% Energy 10% Logs and pulpwood 13% Delivery of own products12% Chemicals and fillers 13% Costs and expenses, total 8,057 million UPM 6

7 UPM IN BRIEF Raw material market prices vs. UPM's cost development Index 2004= Electricity (EEX) Coating materials Chemical pulp Electricity (Nordpool) Bleaching chemicals UPM Paper divisions* 70 Q1 04 Q2 04 Q3 04 Q4 04 Q1 05 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 * Cost/delivered paper ton (rolling 12months) UPM 7

8 UPM IN BRIEF EBITDA* margin of paper divisions 2002 H % H1 06 Magazine papers Newsprint Fine and speciality papers 22,7 16,2 12,5 Profitability improving but still weak Average paper prices declined Raw material prices increased USD/EUR exchange rate development unfavourable for exports Paper capacity closed in previous years Capacity still under utilized * EBITDA is operating profit before depreciation, amortization and impairment charges and excluding non-recurring items UPM 8

9 UPM IN BRIEF EBITDA* margin of Converting 2002 H % H1 06 8,5 Restructurings carried out in Raflatac and Walki Wisa have had a positive impact on profitability Siliconized papers' business, Loparex, was sold in 2005 * EBITDA is operating profit before depreciation, amortization and impairment charges and excluding non-recurring items UPM 9

10 UPM IN BRIEF EBITDA* margin of Wood products 2002 H % H1 06 8,0 Restructuring of Wood products in 2004 has improved its profitability Exit from building materials retail business (sale of Brooks Group and Anco Trae 2004, Puukeskus 2006) * EBITDA is operating profit before depreciation, amortization and impairment charges and excluding non-recurring items UPM 10

11 UPM IN BRIEF Operating profit* % of Other operations 2002 H % H ,8 High self-sufficiency in resources 70% self sufficiency in electricity 90% self sufficiency in chemical pulp including associated companies Own forests represent 10% of wood procurement moderate cost development supports Group's profits * excluding non-recurring items and H1 06 excluding a decrease of 102 million in the fair value of biological assets and wood harvested UPM 11

12 UPM IN BRIEF Cumulative cash flow H1 million Cash from operations 4,960-2,738 Capital expenditure -183 Sales of fixed assets -2, Shares and company acquisitions 1,383 Share repurchases and dividends paid Other Debt UPM 12

13 UPM IN BRIEF Gearing ratio and net interest-bearing liabilities Gearing ratio Net interest-bearing liabilities %, million Target: maximum 100% June June30 06 Ratings: Moody s Baa2 (stable), latest change October 20, 2005 S&P BBB (stable), latest change May 16, 2003 UPM 13

14 BUSINESS ENVIRONMENT

15 BUSINESS ENVIRONMENT Traditional markets have become mature World printing and writing paper demand in mature markets mill. tons Forecast Japan 50 West Europe North America Mature markets growth 0,5 % /year 0 '80 '85 '90 '95 '00 '05 '10 '15 '20 Source and copyright: Jaakko Pöyry UPM 15

16 BUSINESS ENVIRONMENT Growth in paper demand is shifting to emerging markets World printing and writing paper demand in emerging markets Forecast mill. tons 100 Others Latin America 50 Rest of Asia China Emerging markets growth 4,1% /year 0 East Europe '80 '85 '90 '95 '00 '05 '10 '15 '20 Source and copyright: Jaakko Pöyry UPM 16

17 BUSINESS ENVIRONMENT Ctd mechanical and ctd woodfree papers capacity and demand estimate ,6 16,9 0,1 10,7 11,7 N. America 1,3 0,2 0,6 Europe 0,2 0,9 8,6 7,5 Oth. Asia 0,3 7,1 6,6 Japan 0,2 Capacity 50,8 mill. tons Demand 45,2 mill. tons 0,8 1,4 L. America 0,2 0,3 Africa 0,3 0,8 0,8 Oceania 0,8 0,3 Source: Cepiprint, PPPC, Jaakko Pöyry UPM 17

18 BUSINESS ENVIRONMENT Ctd mechanical and ctd woodfree papers capacity* and demand in Europe mill. tons , '07 capacity reductions in Europe - 915'000 t UPM Kymi 150' IIQ 06 UPM Voikkaa 400' IIQ 06 SE Corbehem 250' 2006 UPM Jämsänkoski 115' IQ/07 1,9 Exports 1,4 Overcapacity 1,5 0,9 19,3 10 European Demand N. Am & L. Am Asia European Capacity Source: Cepi, PPPC, EMGE, RISI, Jaakko Pöyry * 2006 estimate UPM 18

19 BUSINESS ENVIRONMENT Printing and writing papers demand in Europe '000 tons '06 vs. ' Source: Cepiprint/fine Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan-July '06 vs. Jan-July '05 News SC Ctd m WFC* WFU* *) Imports not included 4% 9% 3% 4% 3% 4 UPM 19

20 BUSINESS ENVIRONMENT Printing and writing papers demand in North America '000 tons Jan-July '06 vs. Jan-July '05 News SC Ctd m WFC WFU -5% -7% -2% 7% -1% '06 vs. ' Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Cepiprint, PPPC UPM 20

21 UPM'S POSITIONS FOR SUSTAINABLE PROFITABILITY

22 UPM'S POSITIONS FOR SUSTAINABLE PROFITABILITY Target profitable at all times % ,1 16,3 13,5 14,1 7,6 8,7 4,6 4,3 4,5 4,6 4,2 4,3 5,6 5, H106 * Operating Profit % (excl. non-recurring items) ROCE (excl. non-recurring items) *Operating profit % required to cover cost of capital is about 11-12% UPM 22

23 UPM'S POSITIONS FOR SUSTAINABLE PROFITABILITY Target position itself as the lowest cost producer Cost level 2005/I /ton Difference about 250 /t + low costs - high costs Delivered costs to Frankfurt* 9. Voikkaa PM Voikkaa PM Jämsänkoski PM Cumulative capacity, t/y *All LWC 57g/m2 Source: Jaakko Pöyry, UPM UPM 23

24 UPM'S POSITIONS FOR SUSTAINABLE PROFITABILITY Global coated magazine paper machinery comparison After the closures/conversions of Voikkaa mill and Jämsänkoski PM4 the average size of UPM's coated magazine paper machines will be tonnes (industry average tonnes) Weighted average capacity t/a Oji - Weighted average PM capacity, t/a - Weighted average technical age 15 years Bowater New Page IP Myllykoski UPM Stora Enso STRONG M-real Burgo-Marchi Norske Skog 0 WEAK Technical age, years - Source: Jaakko Pöyry 04/2006 UPM 24

25 UPM'S POSITIONS FOR SUSTAINABLE PROFITABILITY Global woodfree* paper machinery comparison After the closure of Kymi PM7 the average size of UPM's coated and uncoated woodfree paper machines will be tonnes (industry average tonnes) Weighted average PM capacity, t/a - Weighted average technical age 17 years Oji Weyerhauser IP Sappi M-real Nippon APP Mondi UPM Stora Enso STRONG Weighted average capacity t/a 0 30 WEAK * Including C2S, C1S, UWF and specialties - Technical age, years - Source: Jaakko Pöyry 04/2006 UPM 25

26 UPM'S POSITIONS FOR SUSTAINABLE PROFITABILITY Roadmap to sustainable profitability Change structure Operate differently Consolidate in mature markets Profitable growth Grow in emerging markets Restructure production portfolio Strengthened competitive position Manage supply based on demand Close uncompetitive capacity Improved cost base Improve operating efficiency UPM 26

27 UPM'S POSITIONS FOR SUSTAINABLE PROFITABILITY Improve operating efficiency Finland Personnel reduction 2,557 by the end of ,885 early retirement 672 notice given France, Germany and Austria Personnel reductions 549 in total Other countries Negotiations for streamlining and personnel reduction ongoing Outsourcing negotiations continue UPM 27

28 UPM'S POSITIONS FOR SUSTAINABLE PROFITABILITY Close uncompetitive capacity Closures and conversions Closure of Voikkaa paper mill in Q3/ Closed in June Closure of Kymi PM 7 in Q3/ Closed in June Closure of Tervasaari PM 6 and the oldest pulp line during Q2/2007 Jämsänkoski PM 4 will be converted to produce label face paper in the beginning of 2007 UPM 28

29 UPM'S POSITIONS FOR SUSTAINABLE PROFITABILITY Sources of improved profitability Estimated annual savings in fixed costs 200 million at the end of the programme million Efficiency improvements Savings in variable costs Savings in fixed costs Asset impairment Provision for personnel costs UPM 29

30 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES

31 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES Capital expenditure, million New production lines and units Jan-Jun 06 Change of line of production Maintenance and replacement expenditure Depreciation excl. amortization of goodwill UPM 31

32 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES UPM Raflatac expands in North America UPM Raflatac's investment: Pressure sensitive labelstock factory in Dixon, Illinois New state-of-the-art factory Investment USD 109 million Start up: Q UPM 32

33 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES UPM Raflatac in North America Dixon factory: New growth platform for the Midwest market Location completes UPM Raflatac's service network for labelstock and RFID tag and inlays in North America Ontario, CA Toronto, ON Dixon, IL Wilkes-Barre, PA Fletcher, NC All major customers will be within 48 hour service range Pressure sensitive label stock factory RFID factory Slitting terminal UPM 33

34 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES UPM Raflatac's sales Europe Film Production USA Dixon, mill. USA CM2 China Changshu 1000 Australia South- Africa 800 Malaysia China USA CM E 07E 08E UPM 34

35 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES UPM Raflatac Number 2 in the world Jyväskylä, Finland Scarborough, UK Dixon, IA Fletcher, NC Barcelona, Spain Tampere, Finland Nancy, France * Shanghai, China ** Changshu, China Johor, West Malaysia UPM Raflatac labelstock factories UPM Rafsec RFID manufacturing UPM Raflatac factories under construction or expansion Slitting terminals Durban, South Africa Melbourne, Australia * start-up 1/2007 ** until 2007 UPM 35

36 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES Changshu platform for growth in Asia Finished goods storage PM 2 Converting plant PM 2 (1999) building PM 1 (2005) building Power plant Water treatment facility Coal yard Pier Raflatac (2007) Pulp storage Walki Wisa (2006) UPM 36

37 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES Investment in Kymi integrate Kymi fine paper integrate ,000 tn paper 550,000 tn pulp Kymi pulp mill investment One new recovery line replaces two old lines Improved energy efficiency and decreasing of emissions Cost 325 MEUR Start up Q4/2008 Project employs up to 900 people UPM 37

38 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES Botnia's pulp mill project in Uruguay Capacity t/a UPM's share about a half of the capacity Based on the Best Available Technology (BAT) Planned start up Q project proceeds according to plan Current situation: The governments of Argentina and Uruguay are engaged in dispute over environmental impact of the mill Conclusion of the International Court: circumstances are not such as to require to suspend the pulp mill construction UPM 38

39 INVESTMENTS IN COMPETITIVE UNITS AND GROWTH BUSINESSES Energy investments Self-sufficiency of electricity generation Finland 100% UPM in total 70% CO2 free energy sources dominate the portfolio Current investments Sludge boiler investments in Shotton and Chapelle Darblay paper mills Rauma mill power plant Indirect participation in PVO/TVO nuclear power plant investment UPM 39

40 Summary To reach sustainable profitability, we close uncompetitive capacity streamline all our operations invest in the most competitive units and growth businesses We are well positioned for growth in the emerging markets in fast growing label materials business We have resources high self-sufficiency in fibre and energy strong balance sheet UPM 40

41 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 41

42 UPM 42