UPM-Kymmene Corporation Interim Report January March Jussi Pesonen President and CEO April 25, 2006

Transcription

1 UPM-Kymmene Corporation Interim Report January March 2006 Jussi Pesonen President and CEO April 25, 2006

2 Q in focus Good growth in paper demand in Europe and Asia Overcapacity in coated grades Meaningful price increases only in newsprint No improvement in operative result compared to last year Sales and deliveries increased Energy and raw material cost increases out weighted paper price increases UPM published the profitability program that includes: PROFIT IMPROVEMENT NUMBER 1 PRIORITY Streamlining all operations Closures of uncompetitive production capacity Employer employee negotiations started in March UPM 2

3 BUSINESS DRIVERS

4 BUSINESS DRIVERS 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 6 5 UPM Estimate 4** Q1 '06** vs. Q1 '05 News SC ***UMI/O Ctd m WFC* WFU* **)March UPM estimate 4%** 9%** -1%** 4%** 7%** 4%** UPM 4 5** *) Imports not included ***) Uncoated mechanical improved / other

5 BUSINESS DRIVERS Printing and writing papers demand in North America '000 tons '06 vs. ' Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1-2 Source: Cepiprint, PPPC UPM Estimate -2** Q1 '06** vs. Q1 '05 News SC ***UMI/O Ctd m WFC* WFU* **)March UPM estimate -2%** -9%** -2%** -3%** 1%** 1%** UPM 5-1** *) Imports not included ***) Uncoated mechanical improved / other

6 BUSINESS DRIVERS Advertising expenditure in printed media Growth % from previous year E 06E Newspapers, Zenith December '05 Magazines, Zenith December '05 Direct Mail, Zenith December '05 Source: Zenith Optimedia and Wilkofsky Gruen, April 2006 UPM 6

7 BUSINESS DRIVERS Paper market price development in Europe EUR/ton Jan-Mar'06 vs. Jan-Mar'05 News SC LWC WFC WFU 6 % 0 % 0 % -1 % -4 % News 45 g/m² SC rg 56 g/m² LWC off 60 g/m² WFCr 100 g/m² WFUr 80 g/m² Source: PPI UPM 7

8 BUSINESS DRIVERS Paper market price development in USA USD/ton Jan-Mar'06 vs. Jan-Mar'05 News SC LWC WFC WFU +13 % +5 % +11 % +5 % +4 % 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: RISI UPM 8

9 BUSINESS DRIVERS Global chemical market pulp price USD/ton '00 '01 '02 '03 '04 '05 '06 PIX NBSK 583 USD/t (Northern Bleached Softwood Kraft) PIX BHKP 587 USD/t (Northern Bleached Hardwood Kraft) Source: FFIF Feb 14, 2006 UPM 9

10 BUSINESS DRIVERS Recycled paper price EUR/ton in Germany '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 Source: EUWID UPM 10

11 BUSINESS DRIVERS Raw material market prices vs. UPM's cost development Index 2004= Electricity (EEX) Coating materials Chemical pulp Electricity (Nordpool) Bleaching chemicals UPM* Cost/delivered ton (rolling 12months) 70 Q1/04 Q2/04 Q3/04 Q4/04 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 *Paper divisions (Sales/EBITDA)/Deliveries UPM 11

12 FINANCIALS JANUARY - MARCH 2006

13 FINANCIALS JANUARY - MARCH 2006 Key figures Q1/06 vs. Q1/05 Sales, M Operating profit, M Q1/06 Q1/05 Change as revised 2,460 2, Non-recurring items Operating profit excl. non-recurring items, M EPS excluding non-recurring items, 0,21 0,20 0,01 Paper deliveries, 1,000 tons 2,633 2, UPM 13

14 FINANCIALS JANUARY - MARCH 2006 Operating profit* of divisions Q1 06 vs. Q1 05, million Magazine Papers Q1/06 Q1/05 Change as revised Newsprint Fine and Speciality Papers Converting Wood products Other Operations Forestry department Energy department, Finland Share of results of associated companies and joint ventures *Operating profit excluding non-recurring items UPM 14

15 FINANCIALS JANUARY - MARCH 2006 Operating profit* margin by division 1(2) % Operating profit % required to cover cost of capital: about 11-12% % 5 4.2% 2.2% ** as revised Q1 2006** Magazine papers Newsprint Fine and speciality papers *Excluding goodwill amortization (2004) and non-recurring items ** Part of the derivative instruments' results relating to cash flow hedges allocated to respective division UPM 15

16 FINANCIALS JANUARY - MARCH 2006 Operating profit* margin by division 2(2) % Operating profit % required to cover cost of capital: about 4% 5.9% 4.0% ** as revised Q1 2006** Converting Wood products *Excluding goodwill amortization (2004) and non-recurring items ** Part of the derivative instruments' results relating to cash flow hedges allocated to respective division UPM 16

17 FINANCIALS JANUARY - MARCH 2006 Value creation % % 6.4% 5.9% WACC pre tax ROCE excl. nonrecurring items ROCE as reported Q1 06 UPM 17

18 FINANCIALS JANUARY - MARCH 2006 Gearing ratio and net interest-bearing liabilities Gearing ratio Net interest-bearing liabilities %, million Target: maximum 100% March March31 06 Ratings: Moody s Baa2 (stable), latest change October 20, 2005 S&P BBB (stable), latest change May 16, 2003 UPM 18

19 FINANCIALS JANUARY - MARCH 2006 Capital expenditure, million New production lines and units Q1 06 Change of line of production Maintenance and replacement expenditure Depreciation excl. amortization of goodwill UPM 19

20 CURRENT TOPICS

21 CURRENT TOPICS Major capital expenditure New and ongoing projects, million Completed Kymi pulp mill recovery plant, Finland Paper machine investments: (Nordland, Docelles, Jämsänkoski, Kaipola) Energy investments (Rauma, Shotton, Chapelle) , , 2007 UPM Raflatac's investments (Tampere, Changshu) 24 M + 40 MUSD 2006, 2007 UPM 21

22 CURRENT TOPICS 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 decreased emissions Cost 325 MEUR Start up Q4/2008 Project employs up to 900 people UPM 22

23 CURRENT TOPICS Botnia pulp mill in Uruguay One of the most modern in the world Capacity ta Based on the Best Available Technology (BAT) Planned start up Q Current situation: Two unrelated, independent social and environmental impact studies made Botnia shareholders committed to support temporary financing The governments of Argentina and Uruguay engaged in dispute over environmental impact of the mill UPM 23

24 PROFITABILITY PROGRAM

25 PROFITABILITY PROGRAM The reasons behind restructuring decision Business environment has fundamentally changed Structural overcapacity in Europe Traditional markets have become mature Downward trend in real paper prices Rapidly increasing cost of production inputs New competition especially in short fibre UPM 25

26 PROFITABILITY PROGRAM Coated mechanical paper Capacity and demand 2006 estimate 10,9 5,7 5,9 N. America Structural overcapacity in Europe 7,3 1,0 0,04 0,7 W. Europe 0,1 0,2 0,1-0,7 Oth. Europe 0,2 0,3 0,8 0,7 Oth. Asia 0,1 1,9 1,8 Japan 0,02 Capacity 19,5 mill. tons Demand 17,0 mill. tons 0,2 0,5 L. America - 0,1 Africa 0,2 0,3 0,1 0,3 Oceania Source: Cepiprint, PPPC, JP UPM 26

27 PROFITABILITY PROGRAM Measures streamlining Cost-efficiency will be strongly raised by streamlining operations in all UPM divisions and functions between years New ways of operating: -Centralized sourcing -Centralized R & D -Integrated IT -Enhanced sales approach -Integrated human resources -Global finance and control New operating modes and efficiency improvements will reduce the number of personnel significantly UPM 27

28 PROFITABILITY PROGRAM Measures planned closures and conversion Planned closures of uncompetitive capacity: Voikkaa Mill 410,000 tn coated magazine paper Q3/2006 Kymi PM 7 150,000 tn coated fine paper Q3/2006 Tervasaari PM 6 Tervasaari SAP pulp line 115,000 tn brown sack paper 60,000 tn semi-alcaline pulp Q2/2007 Q2/2007 Planned conversion: Jämsänkoski PM 4 120,000 tn coated magazine paper 120,000 tn Label papers Q1-Q2/2007 UPM 28

29 PROFITABILITY PROGRAM Measures closing uncompetitive capacity Cost level 2005/I /ton Difference about 250 /t - high costs low costs Delivered costs to Frankfurt* 9: Voikkaa PM18 10: Voikkaa PM11 11: Jämsänkoski PM Cumulative capacity, t/y *All LWC 57g/m2 Source: Jaakko Pöyry, UPM UPM 29

30 PROFITABILITY PROGRAM Estimated personnel impact of the programme Personnel reductions in all divisions and functions during years 2006, 2007 and 2008 are totally about 3,600 persons Streamlining Closing uncompetitive capacity Total 2, about 3,600 In 2006 UPM will additionally start outsourcing negotiations affecting approximately 400 employees UPM 30

31 PROFITABILITY PROGRAM Employee consultations Employee consultations have started in a serious but constructive atmosphere Alternatives reviewed in the employee negotiations: pension or an unemployment benefit until retirements relocation within the company retraining First wave of employee consultations is expected to be completed in the coming few weeks. The company will make the final decisions on the plans after completion of the consultation process. Decisions will be made based on business criteria UPM 31

32 PROFITABILITY PROGRAM UPM supports change UPM is actively seeking alternatives to support retraining and re-employment of the people affected in different locations. Pekka Lehtinen, Director, Human Resources, has been appointed to co-ordinate these efforts. Voikkaa real estate has attracted lots of interest. Mr. Matti Lindahl, President, Speciality Coatings, has been appointed to coordinate the external contacts and responses. UPM 32

33 PROFITABILITY PROGRAM Estimated financial impact Cost impact in 2006 Fixed asset write-off 130 mill. Provision for headcount reduction about 65 mill. Annualized cost savings After completion of the program annual costs savings are estimated to be about 200 mill. UPM estimates that no revenues will be lost due to the closures (except for the brown sack paper 50 mill. after Q2/2007) UPM 33

34 SUMMARY

35 Summary Market outlook Paper demand - another good year ahead in Europe and Asia Paper prices are lacking cost development Cost curtailment has become major a challenge Converting, especially UPM Raflatac's markets, good prospects In wood products plywood markets are firm but sawn timber continues to struggle UPM Profitability program Implementation on schedule First decisions within few weeks Positive profit impact expected 2007 and onwards PROFIT IMPROVEMENT 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

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