UPM-Kymmene Corporation Interim Report January- March Jussi Pesonen President and CEO April 24, 2007

Transcription

1 UPM-Kymmene Corporation Interim Report January- March 2007 Jussi Pesonen President and CEO April 24, 2007

2 Q IN BRIEF UPM's result consistently improved Improved efficiency visible in the results All divisions contributed to higher operating profit Operating profits, million, million *Excluding special items 0 Q1 06 Q1 07 UPM 2

3 BUSINESS DRIVERS

4 BUSINESS DRIVERS Printing and writing papers' demand in Europe '000 tons '07 vs. ' Source: Cepiprint/fine Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 4 2 UPM Estimate** -1 Jan-Mar '07 vs. Jan-Mar '06 News** SC** Ctd m** WFC* WFU* **UPM Estimate *) Imports not included -1% 6% 3% 1% 1% vs vs. 05 UPM 4

5 BUSINESS DRIVERS Printing and writing papers' demand in North America '000 tons UPM Estimate* Jan-Mar '07 vs. Jan-Mar '06 News* SC* Ctd m* WFC* WFU* -11% 5% -1% -1% -7% vs vs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '07 vs. ' * Source: Cepiprint/fine, PPPC *UPM Estimate -5* UPM 5

6 FINANCIALS JANUARY-MARCH 2007

7 FINANCIALS JANUARY-MARCH 2007 Key figures Q Operating profit excluding special items increased by 20%. EPS excluding special items increased from 0.21 to EBITDA% increased from 15.7% to 16.6% Q Q Change Sales, M 2,519 2, EBITDA % Operating profit, M Special items, net Operating profit excl. special items, M EPS excluding special items, Paper deliveries, 1,000 tonnes 2,753 2, Personnel at the end of period 28,578 31,305-2,727 UPM 7

8 FINANCIALS JANUARY-MARCH 2007 EBITDA* margin % % Q1 16.6% 15.7% Q2 16.0% Q3 17.1% Q4 18.1% * EBITDA is operating profit before depreciation, amortization and impairment charges and excluding special items UPM 8

9 FINANCIALS JANUARY-MARCH 2007 Magazine papers Operating profit increased. Fixed costs were lower and efficiency improved. Paper deliveries increased by 5%. Average price for all magazine paper deliveries decreased., million '000 tonnes ,098 1, % % Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Operating profit Excluding special items 0 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Paper deliveries UPM 9

10 FINANCIALS JANUARY-MARCH 2007 Newsprint Profitability improved, main contributor higher price of newsprint Deliveries about 4% less than a year ago Average price for all newsprint deliveries almost 5% up, million '000 tonnes % % Q1 06 Q2 06 Q3 06 Q4 06 Q Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Operating profit Excluding special items Paper deliveries UPM 10

11 FINANCIALS JANUARY-MARCH 2007 Fine and speciality papers Operating profit increased slightly due to better operating efficiency. Deliveries increased in both in Europe and Asia Price increases materialised in uncoated cut size sheets., million '000 tonnes % % Q1 06 Q2 06 Q3 06 Q4 06 Q Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Operating profit Excluding special items Paper deliveries UPM 11

12 FINANCIALS JANUARY-MARCH 2007 Label materials Profitability continued to be good Delivery volumes grew in Europe, North America and Asia Sales increased by 4%, million % % 18, million Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Operating profit Excluding special items 0 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Sales UPM 12

13 FINANCIALS JANUARY-MARCH 2007 Wood products Profitability of plywood continued to be good. Clear improvement in profitability of sawmilling. Excluding Puukeskus Oy, sales increased from the first quarter of 2006., million % 32, million % Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Operating profit Excluding special items 0 Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Sales UPM 13

14 FINANCIALS JANUARY-MARCH 2007 Impact of export tax on wood form Russia UPM's wood consumption in Finland 21,7 million m³ (2006) UPM's wood imports from Russia Wood imports from Russia 4.3 million m³, 20% of the total Based on 2006 imports, the announced increase of export tax would increase UPM's costs in 2007 by about 13 million UPM prepares sourcing alternatives to ensure cost competitive wood raw material UK France 0.6 million m³ Finland Baltic 0.9 Germany million m³ Czech Austria Russia 4.3 million m³ UPM 14

15 FINANCIALS JANUARY-MARCH 2007 Value creation % % 6.2% ROCE ex.spec Q1 7.9% 6.4% Q2 2.7% Q3 7.1% Q4 8.7% WACC pre tax -- ROCE excl. special items -- ROCE as reported UPM 15

16 FINANCIALS JANUARY-MARCH 2007 Gearing ratio and net interest-bearing liabilities Gearing ratio Net interest-bearing liabilities %, million Target: maximum 100% Mar31 07 March 31, Mar31 07 Ratings: Moody s Baa2 (negative), latest change April 17, 2007 S&P BBB (stable), latest change May 16, 2003 UPM 16

17 FINANCIALS JANUARY-MARCH 2007 Capital expenditure, million New production lines and units 600 Change of line of production Q1 07 Maintenance and replacement expenditure Depreciation excl. amortization of goodwill UPM 17

18 INVESTMENTS

19 INVESTMENTS Modernization of Otepää plywood mill in Estonia Birch plywood production line's modernization and capacity increase by 10,000 m³ Enables manufacturing of further processed products, mainly for use of transport industry EUR 9.5 million investment Completion, autumn 2008 Mill capacity after the investment 35,000 m³ UPM is a leading producer of birch plywood products in Europe. Production plants are located in Finland, Russia and Estonia UPM 19

20 INVESTMENTS Kajaani to start using innovative pulping method for pine UPM has developed a new innovative method for using pine for mechanical pulping. The objective is to diversify the mill's raw material base and create cost savings without affecting paper quality and paper machine runnability. A mill scale application of ozone treatment at the Kajaani mill will start early Investment cost is EUR 11 million. UPM's partner in the pilot project has been ITT Wedeco. UPM 20

21 Investments UPM Label Division New self-adhesive label materials factory in Poland

22 INVESTMENTS UPM LABEL DIVISION UPM expands in Europe - New self-adhesive label materials factory in Poland Supplies paper and film label products Hot-melt and water-based acrylic adhesive technologies Approximately EUR 90 million investment Start up Q UPM 22

23 INVESTMENTS UPM LABEL DIVISION New factory in Poland centrally located UPM 23

24 INVESTMENTS UPM LABEL DIVISION World-class label material operation Centrally located state-of-the-art production and logistics centre in the eastern part of Central Europe Expands capabilities to better serve the growing eastern European markets Completes UPM Raflatac's service network for self adhesive label materials and RFID tag and inlays in Europe UPM 24

25 INVESTMENTS UPM LABEL DIVISION UPM Raflatac's global growth history Mill. EUR Acquiring global presence Strong organic development 1000 Fletcher RFID Fletcher Dixon Poland 800 Polinya Changshu RFID Jyväskylä South Africa Fletcher CM2 200 China Australia Malaysia UPM-Kymmene Corp. Label division UPM Raflatac 8 UPM-Kymmene Corp. Raflatac UPM-Kymmene Corp. UPM Raflatac UPM 25

26 INVESTMENTS UPM LABEL DIVISION Strong global growth platform Tampere, Finland * Scarborough, UK Nancy, France Dixon, IL Fletcher, NC Jyväskylä, Finland Poland ** Barcelona, Spain Changshu, China UPM Raflatac labelstock factories UPM Raflatac RFID manufacturing UPM Raflatac factories under construction Slitting terminals UPM Johor, West Malaysia Durban, South Africa Melbourne, Australia * start-up 1/2008 ** start-up 4/

27 INVESTMENTS UPM's major ongoing investments Ongoing investments Pulp mill investments: Tervasaari new bleaching line, Kymi recovery plant Paper machine investments: Jämsänkoski (PM4 conversion, magazine quality), Kajaani (usage of pine in mechanical pulping) Energy investments: Chapelle, Caledonian Self-adhesive label materials investments: Dixon, USA, a new factory Poland, a new factory Wood products' investments: Savonlinna, Jyväskylä, Chudovo, Heinola, Otepää Value 350 mill. 94 mill. 147 mill. USD 109 mill. 90 mill. 23 mill. Estimated completion 2007, , , , 2008 UPM 27

28 SUMMARY

29 Summary for the first quarter 2007 Clear and consistent profit improvement continued during the beginning of the year. Major investments in self-adhesive label materials. Exit from the Walki Wisa industrial wrappings business. Market outlook for the second quarter of 2007 In Europe, the good demand for paper continues, and deliveries are expected to increase from last year. Average price for UPM's all paper deliveries remains about the same as in the first quarter of the year. In uncoated fine papers price increases were implemented earlier in April. In self-adhesive label materials good growth and stable pricing environment is expected to continue. In wood products strong demand continues. UPM 29

30 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 30

31 UPM 31

32 BUSINESS DRIVERS

33 BUSINESS DRIVERS 2006 Demand, capacity and prices in Europe '000 tonnes Paper capacity and demand in Europe +0,5% 900 Paper prices in Europe ,9% +6% % W. Eur demand E. Eur demand Capacity News 45 g/m² SC rg 56 g/m² LWC off 60 g/m² WFCr 100 g/m² WFUr 80 g/m² Source: Cepiprint, Cepifine, PPI UPM 33

34 BUSINESS DRIVERS 2006 Demand, capacity and prices in North America '000 tonnes Paper capacity and demand in North America USD Paper prices in USA % -2% NA demand Capacity News 48,8 g/m² SC 51,8 g/m² LWC 59,2 g/m² WFCr 88,8 g/m² WFUr off 74 g/m² Source: Cepiprint, Cepifine, PPPC, RISI UPM 34

35 BUSINESS DRIVERS 2006 Demand, capacity and prices in Asia '000 tonnes Paper capacity and demand in Asia +5% USD 1100 Example of paper prices in China imported % domestic Asia demand Capacity WFU s g WFC s g Source: PPI UPM 35

36 BUSINESS DRIVERS Paper market price development in Europe EUR/ton Jan-Mar '07 vs. Jan-Mar '06 News SC LWC WFC WFU 4 % 0 % -2 % 1 % 4 % Source: PPI News 45 g/m² SC rg 56 g/m² LWC off 60 g/m² WFCr 100 g/m² WFUr 80 g/m² UPM 36

37 BUSINESS DRIVERS Paper market price development in USA USD/ton Jan-Mar ' vs. Jan-Mar ' News SC LWC WFC WFU -4 % -3 % -12 % +2 % +11 % Source: RISI News 48,8 g/m² SC 51,8 g/m² LWC 59,2 g/m² WFCr 88,8 g/m² WFUr off 74 g/m² UPM 37

38 BUSINESS DRIVERS Example: Paper market price development in China USD/ton imported 900 domestic WFU s g WFC s g Source: PPI UPM 38

39 BUSINESS DRIVERS Coated magazine paper price in Euro, development in Germany and USA /metric ton '06 '07 '08 Source: PPI Germany USA UPM 39

40 BUSINESS DRIVERS Raw material market prices vs. UPM's cost development Index 2004= Electricity (EEX) Oil Chemical pulp Coating materials Bleaching chemicals Electricity (Nordpool) Electricity (EEX) 70 Q1/04 Q2/04 Q3/04 Q4/04 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 Q4/06 Q1/07 UPM Paper divisions* * Cost/delivered paper ton (rolling 12months) UPM 40

41 BUSINESS DRIVERS Global chemical pulp market price USD USD/ton 800 USD 772/t USD 672/t '00 '01 '02 '03 '04 '05 '06 '07 PIX NBSK (Northern Bleached Softwood Kraft) PIX BHKP (Northern Bleached Hardwood Kraft) Source: FOEX April 17, 2007 UPM 41

42 BUSINESS DRIVERS Global chemical pulp market price EUR EUR/ton EUR 570/t EUR 497/t 300 '00 '01 '02 '03 '04 '05 '06 '07 PIX NBSK (Northern Bleached Softwood Kraft) PIX BHKP (Northern Bleached Hardwood Kraft) Source: FOEX April 3, 2007 UPM 42

43 BUSINESS DRIVERS Recycled paper price EUR/ton in Germany EUR 83/t '00 '01 '02 '03 '04 '05 '06 '07 Source: EUWID UPM 43

44 BUSINESS DRIVERS Price comparison: uncoated fine paper and short fibre hardwood pulp /ton /t avg difference BHKP /t 300 '00 '01 '02 '03 '04 '05 '06 '07 Uncoated fine paper avg difference 169 WFU (Woodfree uncoated) PIX BHKP (Northern Bleached Hardwood Kraft) Source: FFIF April 3, 2007, PPI UPM 44

45 BUSINESS DRIVERS Advertising in printed media * Asia North America Europe Increase -% from the previous year e 2007e -2-4 *Asia excluding direct mail Source: ZenithOptimedia December 2006 North America Europe Asia UPM 45

46 BUSINESS DRIVERS Advertising expenditure in printed media Growth % from previous year E 07E Newspapers, Zenith December 06 Magazines, Zenith December 06 Direct Mail Source: ZenithOptimedia, Direct mail: North America and Europe only, Wilkofsky Gruen Associates and Zenith UPM 46

47 BUSINESS DRIVERS Advertising pages and advertising expenditure Consumer magazines Q vs. Q12006, % USA +1% +7% UK +1% +2% Germany -5% +1% Newspapers Q vs Q1 2006, % UK Germany % +3% +5% +6% Sources: PIB, VZD, Nielsen Ad pages Ad expenditure UPM 47

48 BUSINESS DRIVERS Consumer magazine advertising pages in Germany, UK and USA Year on year monthly growth % Germany USA UK Source: PZD, Secodip, PIB UPM 48

49 CHANGED BUSINESS ENVIRONMENT Overcapacity gets to be addressed sustainability of exports is a challenge mill. tons 15 Closures ,9 European capacity* 21,5 Announced closures ,7 Exports & Slack 1,5 Asia & Other 2,1 N. Am. & Lat. Am. 0,5 Supply/demand of coated magazine and fine papers Announced capacity closures will improve the market balance Large share of exports together with excess capacity imposes a threat to the market balance in Europe European demand 16,7 Part of exports is unprofitable 10 Sources: Cepi, PPPC, EMGE, RISI, Jaakko Pöyry * 2007 estimate UPM 49