UPM-Kymmene Corporation Interim Report January June Jussi Pesonen President and CEO July 27, 2006

Transcription

1 UPM-Kymmene Corporation Interim Report January June 2006 Jussi Pesonen President and CEO July 27, 2006

2 Q in focus Good growth in paper demand in Europe and Asia Overcapacity continues in coated grades Paper prices remained about the same as during Q Operative result at the level of Q Sales and deliveries increased UPM's costs under control UPM profitability program: PROFIT IMPROVEMENT NUMBER 1 PRIORITY Voikkaa and Kymi PM closed in June Labour negotiations completed in Finland, France, Germany and Austria 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 ** Jan-Jun '06 vs. Jan-Jun '05 News SC Ctd m WFC* WFU* **June UPM estimate 5% 8% 3% 5% 2% *) Imports not included 4 UPM 4

5 BUSINESS DRIVERS Printing and writing papers demand in North America '000 tons Jan-Jun '06 vs. Jan-Jun '05 News SC Ctd m WFC WFU -4% -8% -3% 7% -1% Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec '06 vs. ' ** Source: Cepiprint, PPPC **June UPM estimate -2 UPM 5

6 BUSINESS DRIVERS Paper market price development in Europe EUR/ton Jan-Jun '06 vs. Jan-Jun '05 News SC LWC WFC WFU 5 % 0 % 0 % -1 % -3 % 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 6

7 BUSINESS DRIVERS Paper market price development in USA USD/ton Jan-Jun '06 vs. Jan-Jun '05 News SC LWC WFC WFU +12 % +3 % +6 % +5 % +9 % 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 7

8 BUSINESS DRIVERS Advertising expenditure in printed media Growth % from previous year E 06E Newspapers, Zenith June 06 Magazines, Zenith June 06 Direct Mail Source: ZenithOptimedia, Direct mail: North America and Europe only, Wilkofsky Gruen Associates and Zenith UPM 8

9 BUSINESS DRIVERS Global chemical pulp market price USD/ton USD 697/t USD 649/t '00 '01 '02 '03 '04 '05 '06 PIX NBSK (Northern Bleached Softwood Kraft) PIX BHKP (Northern Bleached Hardwood Kraft) Source: FFIF July 18th, 2006 UPM 9

10 BUSINESS DRIVERS Recycled paper price EUR/ton in Germany EUR 70/t 50 0 '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 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 11

12 FINANCIALS JANUARY - JUNE 2006

13 FINANCIALS JANUARY - JUNE 2006 Quarterly key figures Sales, M Operating profit, M Q2/06 Q1/06 Change Q2/05 Q2-Q1 06 as revised 2,484 2, , Non-recurring items Change in the value of biological assets Operating profit excl. non-recurring items and change in the value of biological assets, M EPS excluding non-recurring items and change in the value of biological assets, EPS as reported, Paper deliveries, 1,000 tons 2,692 2, ,343 EBITDA % of sales * EBITDA is operating profit before depreciation, amortization and impairment charges and excluding the change in value of biological assets, the share of results of associated companies and joint ventures and excluding non-recurring items UPM 13

14 FINANCIALS JANUARY - JUNE 2006 EBITDA* margin of paper divisions % % 17.7% 12.1% as revised Q Q Magazine papers Newsprint Fine and speciality papers * EBITDA is operating profit before depreciation, amortization and impairment charges and excluding non-recurring items UPM 14

15 FINANCIALS JANUARY - JUNE 2006 Quarterly operating profit* of divisions, million Magazine Papers Q2/06 Q1/06 Change Q2/05 Q2-Q1 06 as revised Newsprint Fine and Speciality Papers Converting Wood products Other Operations Forestry department** Energy department, Finland Other and eliminations Share of result of associated companies and joint ventures *Operating profit excluding non-recurring items **Q2/06 includes a decrease of 102 million in the value of biological assets and wood harvested UPM 15

16 FINANCIALS JANUARY - JUNE 2006 Operating profit* margin by division 1(2) % Operating profit % required to cover cost of capital: about 11-12% % 5.9% 3.7% as revised Q Q Magazine papers Newsprint Fine and speciality papers *Excluding goodwill amortization (2004) and non-recurring items UPM 16

17 FINANCIALS JANUARY - JUNE 2006 Operating profit* margin by division 2(2) % 8 6 Operating profit % required to cover cost of capital: about 4% 5.8% 5.4% Q Q as revised Converting Wood products *Excluding goodwill amortization (2004) and non-recurring items UPM 17

18 FINANCIALS JANUARY - JUNE 2006 Value creation % % 2.7% WACC pre tax ROCE excl. nonrecurring items ROCE as reported 0 neg /06 UPM 18

19 FINANCIALS JANUARY - JUNE 2006 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 19

20 FINANCIALS JANUARY - JUNE 2006 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 20

21 PROFITABILITY PROGRAMME

22 PROFITABILITY PROGRAMME Decisions Personnel 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 22

23 PROFITABILITY PROGRAMME UPM's "From-Job-to-Job" programme minimizing the impact of redundancy The programme has had a successful launch Around 200 persons reemployed in Finland by the end of August Programme to continue continued financial support for relocation and retraining until end 2008 first start-up supports will be granted in August, application possibility until end 2008 potential of vacancies in UPM's Wood Products within a year Aker Yards and Holming Works will introduce the job opportunities in Turku and Pori in August UPM 23

24 PROFITABILITY PROGRAMME Decisions Closures 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 To cease production of coated magazine paper at Jämsänkoski PM 4 and to convert it to produce label face paper in the beginning of 2007 UPM 24

25 PROFITABILITY PROGRAMME Closures are substantial for UPM but. UPM's coated magazine paper capacity in Europe 3,070 ktons Coated magazine paper capacity in Europe 10,900 ktons* UPM's capacity closures European demand 7,900 ktons* Exports and overcapacity 3,000 ktons* Through closures UPM will reduce 17% of its European coated magazine paper capacity UPM's capacity closures represent 5% of the European coated magazine paper capacity Source: Cepiprint, PPPC, Jaakko Pöyry *estimate 2006 UPM 25

26 PROFITABILITY PROGRAMME Coated mechanical and fine paper grades demand and capacity* 30 mill. tons ,6 ('07; 21,7) 16,9 10,7 11,7 8,6 7, '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 7,1 6,6 5 1,8 2,5 0 Europe N. America Asia Japan Others Capacity 50.8 mill. tons Demand 45.2 mill. tons Source: Cepi, PPPC, EMGE, RISI, Jaakko Pöyry * 2006 estimate UPM 26

27 PROFITABILITY PROGRAMME Coated magazine and fine paper grades - demand and capacity* in Europe 25 Overcapacity 2,4 mill. tons ,9 Exports 1,4 20,2 16,9 10 European Demand N. Am & L. Am Asia European Capacity Source: Cepi, PPPC, EMGE, RISI, Jaakko Pöyry * 2006 estimate UPM 27

28 PROFITABILITY PROGRAMME 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 28

29 CURRENT TOPICS

30 CURRENT TOPICS Major capital expenditure Investment Pulp mill investments: Kymi recovery plant Tervasaari new bleaching line Paper machine investments: (Nordland, Docelles, Jämsänkoski) Value 325 mill. 25 mill. 153 mill. Estimated completion Energy investments: (Rauma, Shotton, Chapelle) 155 mill. 2006, 2007 UPM Raflatac's investments: Tampere, lamination line modernization Changshu, new pressure sensitive labelstock factory Dixon, new pressure sensitive labelstock factory 24 mill. USD 40 mill. USD 109 mill UPM 30

31 CURRENT TOPICS 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 31

32 CURRENT TOPICS 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, IA Wilkes-Barre, NY Fletcher, NC All major customers will be within 48 hour service range Pressure sensitive label stock factory RFID factory Slitting terminal UPM 32

33 CURRENT TOPICS 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 33

34 CURRENT TOPICS 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 34

35 Summary Market outlook Paper demand - another good year in Europe and Asia Average paper prices forecast to be somewhat higher than last year Converting, especially UPM Raflatac's markets, good prospects Plywood in good demand, markets for sawn timber expected to improve UPM Raflatac's investment UPM Raflatac investment in Dixon, Illinois a consistent step in strengthening UPM Raflatac's global position in the fast-growing labelstock business PROFIT IMPROVEMENT NUMBER 1 PRIORITY UPM Profitability program Implementation ahead of schedule Annual cost savings target 200 million Costs frontloaded on year 2006 contribution on profits Q and onwards 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. For more detailed information about risk factors, see pages 4-8 of the company's annual report on form 20-F for the year-ended 31 December, 2005 under "Item 3. Risk Factors". UPM 36

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