UPM corporate presentation Balance between supply and demand

Transcription

1 UPM corporate presentation Balance between supply and demand SHB Materials Seminar Jussi Vanhanen President, Engineered Materials Business Group 10 March, 2011

2 Contents UPM's strategy and financials Paper markets Pulp markets Label markets Summary

3 STRATEGY AND FINANCIALS Restructuring has been a prerequisite for improved profitability and UPM s renewal Growth & Internationalisation Restructuring & securing the platform UPM renewal Acquisitions - Europe - North America - China Greenfield investments First biomass boilers Restructuring - Mill closures - Cost cutting - Internal efficiency Platform building - Divestments - Greenfield investments Biofore vision Market driven organization Acquisitions - Uruguay - Myllykoski Opportunities and priorities - Biofuels - Changshu paper mill expansion - Expansion in chemical pulp - Investments in European cost efficiency - OL4 - Product renewal

4 STRATEGY AND FINANCIALS Heading there % of sales Operating profit excluding special items ,1 12 Target over 10% ,2 4,4 4,8 6,0 7,2 8,3 5,4 3,5 8, UPM

5 STRATEGY AND FINANCIALS Longer perspective cash flow over a full cycle million Cash flow, trailing 12 months Operating cash flow m m UPM Q104 Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Cash flow after capex ( * Q208 Q308 Q408 Q109 Q209 Q309 Q409 Q110 Q210 Q310 Q410 * ) excluding acquisitions and divestments

6 STRATEGY AND FINANCIALS UPM's asset base provided strong cash flow through the recession Net debt, million Net debt / EBITDA (trailing 12 months) 4,5 Net debt, million Gearing % Net debt / EBITDA 3.5 4,0 3, Gearing , , Net debt 2, Net debt , UPM

7 STRATEGY AND FINANCIALS Modern assets mean low investment needs on existing capacity million Capital expenditure and estimate for 2011 Estimate 720 Low operational capex requirements Large scale pulp mills and paper machines Modern machines require less maintenance than old UPM e Depreciation excl. amortization of goodwill ( * Strategic investments Operational investments Uruguay and PVO acquisitions Few must-do investments No pulp mill rebuilds UPM capex is discretionary * ) excluding acquisitions

8 Outlook for 2011 ( * Guidance for operating profit excluding special items to improve from H to improve clearly from H Variable cost inflation expected to moderate from 2010 Business area drivers for 2011 vs vs Prices Deliveries Energy Pulp Sawn timber Paper Label Plywood UPM average 8 UPM ( * See complete wording of the "Outlook" in the Financial Review 2010

9 MYLLYKOSKI ACQUISITION

10 MYLLYKOSKI ACQUISITION UPM acquires Myllykoski UPM has signed an agreement to acquire Myllykoski Corporation and Rhein Papier GmbH Enterprise value EUR 900 million Financing - UPM issues 5 million shares - UPM raises bank loans of EUR 800m The agreement subject to customary closing conditions, incl. approvals from competition authorities expected to close in the Q Main rationale is to improve profitability and cost efficiency in UPM European paper business 10 UPM All figures apart from the number of shares are approximates

11 MYLLYKOSKI ACQUISITION Summary of the financial impacts Earnings impact Estimated annual synergies over EUR 100 million materialising from 2012 Cash flow enhancing immediately after closing Earnings per share enhancing in 2012 Other UPM will book a one-off gain of approximately EUR 300 million Estimated restructuring costs and investments total EUR m Balance sheet impact Net debt increases by approximately EUR 800 million Gearing estimated to increase by 8 percentage points Group's assets increase by about EUR 1.6 billion 11 UPM

12 MYLLYKOSKI ACQUISITION Paper operations to be acquired Mills Grade Cap. 1,000 t Personnel Q3/2010 Myllykoski Paper LWC, SC MD Albbruck MWC/LWC Lang Paper News, SC MD Plattling LWC Madison Paper SC Plattling Papier (RP) SC Hûrth (RP) News North America Madison TOTAL 2,830 2,600 *) Myllykoski Paper Source: Myllykoski * ) incl. non-mill personnel Invested recently over EUR 700m on new capacity Plattling PM 1 (2007); 380,000 t/a of SC paper Hürth (2002); 310,000 t/a of newsprint Rhein Papier Albbruck Lang Plattling UPM mills Myllykoski mills 12 UPM

13 MYLLYKOSKI ACQUISITION Achieve sustainable cost structure through consolidation Price Transaction Margin squeeze Declining real price trend needed for print media competitiveness Costs Sustainable profitability Restructuring costs and investments to gain synergies Continuous potential for cost savings in a large production portfolio 13 UPM

14 PAPER MARKETS

15 PAPER Graphic papers demand improved in all regions in 2010 '000 tonnes Europe North America '000 tonnes '000 tonnes Asia % % % % % % e e e W. Eur demand E. Eur demand Capacity NA demand Capacity Asia demand Capacity Source: Cepiprint, Cepifine, PPPC, PPI 15 UPM

16 PAPER Graphic papers demand is shifting to growth markets million tons CAGR 2.0% p.a CAGR 0.6% p.a % 9% 0% Others China Japan 3% 4% % North America -2% -3% 50 2% Europe -1% 0 '90 '95 '00 '05 '10e '15e '20e 0 Source: JP, PPPC, RISI, BCG, UPM 16 UPMU

17 PAPER Graphic papers 1) trade flow changes net exports from Europe are declining > 2010p 3.4 -> > 2010p 0.3 -> Net exports Europe 2.7 -> 1.8 Net exports Europe 3.3 -> > > 3.7 N. America & L. America Capacity 158 mill. tons Demand 137 mill. tons 1) Maga, News and Fine grades 2) Excl. WFU special Europe 2) > 2010p 1.3 -> 1.6 N. America Net exports 0.1 -> > Africa Asia & Oceania Source: Cepiprint, PPPC, RISI, JP, UPM 17 UPM

18 PAPER Net capacity reduction by company 6.6 million tonnes (12%) in Europe in e Stora Enso M-Real UPM Norske Skog Sappi Mat. & Forest Int. Paper AbitibiBowater Burgo Arctic Paper PSM Paperalia S.A. Holmen P. de Voiron/Vertaris Myllykoski Perlen Papier Palm Group Portucel Others UPM has closed 1.8m tonnes in total, including North America + Source: Pöyry, UPM, public sources 18 UPM net changes '000 tons decided changes included

19 PAPER UPM has completed major restructuring in person Personnel in Paper business area tons/ person 1000 Capacity and deliveries per employee Closed units Deliveries per employee Continuing operations (-20%) 600 Capacity per employee UPM Note: no significant outsourcing

20 PAPER Fibre prices squeezing paper makers' margins WFU / LWC /ton 950 Hardwood pulp (BHKP) /ton Newsprint /ton RCP (ONP) /ton BHKP Newsprint 150 WFU LWC RCP WFU LWC PIX BHKP News 45 g/m² RCP Source: FOEX Indexes Ltd., PPI, RISI 20 UPM

21 PAPER UPM's paper prices in 2011 UPM has increased paper prices in the beginning of Examples in Europe: - Magazine papers about + 5-8% - Newsprint about + 20% - Fine and speciality papers no material changes The average price for UPM's paper deliveries is expected to increase by about 6% in the beginning of the year from Q Publication paper prices return broadly to 2009 level Raw material costs have increased substantially from UPM

22 PULP MARKETS 22 UPM

23 PULP Chemical pulp demand is growing driven by various end-uses 000 tonnes Market pulp demand development Forecast Packaging Other Publication Papers Fine Papers, mature markets Tissue e 2012e 2013e 2014e BHKP BSKP UKP Sulphite Fine Papers, growth markets Source: PPPC, Pöyry, UPM 23 UPM

24 PULP Capacity growth is focused on regions with increasing wood availability and cost efficient plantation operations Chemical market pulp capacity growth by region 2.4% '000 tonnes % % 1.2% 1.8% 0.2% 0 Total Source: PPPC 24 UPM Latin Asia North Eastern Western America America Europe Europe Wood availability Increasing Stable / decreasing Source: Pöyry

25 PULP UPM s cost competitive pulp capacity 3.2 million tons is produced at four modern mills /t Market pulp producers' delivered cash costs to Frankfurt, EUR/t UPM Finland UPM Uruguay Metsä-Botnia Finland Increased share of plantation based pulp World softwood market pulp World hardwood market pulp Source: Pöyry estimate Q4/ UPM Cumulative capacity, 1000 t/a

26 LABEL MARKETS

27 LABEL Development from cost cutting to renewal provides long-term profitability for Label Growth through large scale investments Changshu, Dixon, Wroclaw Cost cutting for sustainable profitability LAB ~450 employees Focus on renewal but maintaining cost efficiency Special products, investments in emerging markets 27 UPM 27

28 LABEL Labelstock is a ~6 bn EUR growing business globally, UPM has the #2 position in most markets annual growth estimations: US & Canada Western Europe ~2% ~3% Eastern Europe Japan & Korea Greater China 1-2% 12-15% UPM Raflatac Avery Dennison Other main competitor Other competitors Latin America 7-9% Sub-Saharan Africa 3-5% South of Asia 15-20% South East Asia 10-12% Oceania 2-4% Sources: UPM Raflatac estimates, FINAT, TLMI 28 UPM Asia including only high & medium quality segment

29 LABEL Mastering product complexity deriving out of customers' specialized needs is key to a profitable labelstock operation MENU: Customer chooses face/adhesive/backing combinations Standard END-USE: Products for specific end-use needs, e.g. pharma, security Specials TAILORED: Products engineered or modified for customer's specific needs Volume Added value # of products # of products 29 UPM

30 SUMMARY 30 UPM

31 Summary UPM is committed to real profitability and cost efficiency improvement Strong cash flow and balance sheet give means to realise growth opportunities in the future UPM is leading paper consolidation in Europe enables efficiency improvement and sustainable cost structure UPM is well positioned to benefit from growing chemical pulp and label markets 31 UPM

32 Vision UPM The Biofore Company As the frontrunner of the new forest industry UPM leads the integration of bio and forest industries into a new, sustainable and innovation-driven future. We reshape markets through cost leadership, change readiness and leading innovation. Purpose We create value from renewable and recyclable materials by combining expertise and technologies within fiber based, energy-related and engineered materials businesses. 32 UPM

33 33 UPM