UPM REPOSITIONING FOR THE FUTURE

Transcription

1 UPM REPOSITIONING FOR THE FUTURE UBS Global Paper and Forest Products Conference September 2008 Jussi Pesonen President and CEO

2 Repositioning for the future In the forest and paper industry, paper making has been on defense for many years UPM has also been affected We have taken a number of major restructuring actions to reposition the company UPM's new business structure is a change-making statement how to develop the company to add better value UPM 2

3 New business structure to leverage the company's competitive advantages sets the basis for market driven operations in all three Business Groups develop energy related and pulp businesses strengthen the cost leadership by optimizing resources, production and investments as well as decreasing complexities in Paper increase the weight of fast growing higher value added businesses in Engineered Materials new segment reporting to increase transparency of the results and value creation in the company UPM 3

4 Leveraging UPM's competitive advantages Growth Opportunities Energy & Pulp Key resources Paper Large modern mills/ scale End market Uruguay Borea (Russia) Pulp large modern mills self-sufficient Fine paper Consumer papers Copy paper Forms/envelopes Nuclear Biofuels Energy low-cost 79% self-sufficient Magazine papers Printers Direct marketing Catalogues Biomass Forests 10% self-sufficient Newsprint Publishers Magazines Newspapers Books/directories UPM 4

5 Customers have a choice: different paper grades for the same end use Grade End-use Newspaper Publishing Book/ Directories Magazines Advertising material Direct Catalogues marketing Consumer papers Business forms + Copy paper Envelopes Newsprint MFS SC LWC WFC WFU Each paper grade's share of total end-use consumption UPM estimates 3% and below 5 10% 11 30% 31 50% over 50% UPM 5

6 UPM STRUCTURE Three Business Groups as of 1 December 2008 UPM Energy and Pulp Paper Engineered Materials Business areas Finnish pulp mills Hydro power assets Magazine Fine Label RFID Shares of associated companies in pulp and energy Biofuels Newsprint Speciality Plywood Wood Plastic Composites Forests & Timber Strategic focus develop & grow energy and energy related businesses develop & grow competitive pulp secure competitive biomass cost leadership with customer focus effective supply chain management optimization of resources, production and investments grow profitably and pursue industry leadership develop new businesses UPM 6

7 Results for 2008 will be reported according to the new reporting structure UPM will report financial information for the following segments: Energy (including shares in associated companies) Pulp (including shares in associated companies) Forest and Timber Paper Label Plywood, and Other operations Result for 2008 according to the new structure on February 5, Comparable financial figures for Q107-Q308 published in December UPM 7

8 UPM strategy - Key messages Short to medium term UPM will drive European restructuring to secure profitability and cash flow through undisputed cost leadership. Long term UPM will reshape its portfolio: new markets, engineered materials and energy related businesses broaden our scope. Fibre based businesses continue to form the cornerstone of our strategy. UPM 8

9 Financials and proactive actions

10 PROACTIVE STRATEGY ACTIONS Profitability improvement has been cut off by adverse cost development % ,3 14,1 9,2 8,5 7,5 6,8 5,6 4,4 4,8 4, H107 H108 Operating Profit % (excluding special items and forest valuations) Operating Profit for H1 in 2007 and 2008 Required to cover WACC Operating profit % required to cover cost of capital is about 10-11% on the Group level UPM 10

11 PROACTIVE STRATEGY ACTIONS UPM has proactively reduced capacity in oversupplied grades '000 tonnes Capacity (at year end) Deliveries UPM 11

12 PROACTIVE STRATEGY ACTIONS With efficiency improvements, fixed costs per tonne have declined 14% since Paper segments costs per delivered tonne (excluding depreciation) 2003 = % Variable costs % Total costs % Fixed costs UPM 12

13 PROACTIVE STRATEGY ACTIONS Self-sufficiency in energy and pulp have buffered input costs million EBIT development 2003 H108 (excl. special items) Paper segments and resources H108 vs. H Paper segments -61m Wood Products -62m 100 EBIT 2003 Paper prices, currency Paper deliveries Paper costs Paper depreciation Other operations Converting/Label Materials Wood Products Fair value gains EBIT H108 UPM 13

14 FINANCIALS Gearing ratio and net interest-bearing liabilities Gearing ratio Net interest-bearing liabilities % million Target: maximum 100% June Ratings: Moody s Baa3 (negative), latest change July 29, 2008 S&P BBB- (negative), latest change April 21, June UPM 14

15 FINANCIALS Strategic investments since 2003 approx. 2 billion million 1200 Strategic investments since H108 Strategic investments Maintenance investments Depreciation Maintenance investments approx pa Energy RCP China, Labels Energy/Pulp Paper rebuilds UPM 15

16 FINANCIALS Cash flow and the utilization priorities million 1800 CASH FLOW PRIORITIES: Net cash used in investing and financing activities Net cash provided by operating activities 1. Maintenance investments 2. Dividend 3. Strategic investments 4. Share buy-backs 5. Reduction of debt UPM 16

17 UPM REPOSITIONING FOR THE FUTURE ACTIONS TO MOVE ON IN SEPTEMBER 2008

18 Planned actions 1. Planned closure of Kajaani paper mill Paper capacity 640,000 t/a, 3 paper machines 535 employees would be affected 2. Planned closure of Tervasaari pulp mill Capacity t/a of soft kraftwood pulp 150 employees would be affected 3. UPM's Label Division plans restructuring its European operations to secure profitability in a weak economic environment 4. UPM starts measures to improve efficiency in all of the company's business groups and functions. A preliminary estimate for personnel reduction is about 950 UPM 18

19 Potential closure of Kajaani paper mill Newsprint demand growth is slowing in Europe 14 European newsprint capacity and deliveries million tons / % of capacity Substitution by electronic media affects newsprint demand Overcapacity Net exports Palm 5% 9% 11% 3% 3% Stora Enso Myllykoski 5% 10% Papresa 5% 10% 8% 8% Holmen 6% 9% 9% 7% Palm 2009 Newsprint demand suffers from weaker economy (classifieds etc.) Plenty of newsprint capacity located close to customers Demand Demand-supply outlook is weak in newsprint with current levels of capacity Sources: Cepi, PPPC, EMGE, RISI, Pöyry UPM 19

20 Potential closure of Kajaani paper mill UPM's newsprint mills operate in the middle of the market using recycled fiber 100 % Cash costs per delivered ton Kajaani Kaipola Transportation Shotton Energy and fiber Other costs Chapelle Schwedt Schongau Steyrermühl 0 % Local RCP mill Kajaani newsprint RCP Virgin wood fiber UPM 20

21 Impact of potential Kajaani closure '000 tonnes Capacity (at year end) Deliveries Capacity after Kajaani, latest twelve months' deliveries Capacity 5% Latest twelve months' deliveries 1.4% vs UPM 21

22 Potential closure of Tervasaari pulp mill Remaining UPM pulp mills are competitive BSKP mills in Europe BHKP mills in Europe PM Capacity, 1000 t/a Weighted average technical age 18,7 years STRONG PM Capacity, 1000 t/a Weighted average technical age 19,7 years STRONG 800 UPM 800 UPM 700 UPM 700 UPM Weighted average capacity t/a UPM Weighted average capacity t/a UPM WEAK UPM Tervasaari Technical age, years WEAK Technical age, years 5 0 UPM Metsä-Botnia Other Finnish pulp mills Other European pulp mills Source: Pöyry UPM 22

23 Availability of competitively priced wood in Finland becomes uncertain 1(2) Finland (actual 2007), Mm³ 2008: Availability of wood uncertain and wood prices too high for profitable operation 22 Industrial consumption* 17 Domestic wood* Imported wood UPM has continued imports in order to "buy time" Others UPM * Including 11 Mm3 chips UPM 23

24 UPM: availability of competitively priced wood in Finland becomes uncertain 2(2) Change in UPM's wood sourcing (EST 2009), m³ 2009: 2 UPM will cut wood consumption by 2Mm³ 5 UPM will increase domestic sourcing, provided it is economically viable UPM's current imports UPM's future imports Increase domestic sourcing Reduction of wood consuming capacity UPM 24

25 Estimated financial impact of potential closures and streamlining Fixed asset write-off in Q4/2008 EUR 170 million (pretax) Provision for personnel reduction and other closure costs in Q4/2008 are estimated to be about EUR 30 million (pretax). Cash impact will take place mainly during years We expect some revenue to be lost due to lower available capacity in newsprint. The planned closure actions are estimated to provide a positive EBITDA impact and improve cost competitiveness. Streamlining is estimated to create savings of about 70 million in fixed costs, mainly due to reduction in number of employees. UPM 25

26 Impairment of Newsprint Division's goodwill to be recorded in Q Based on impairment testing conducted in September, company will record: EUR 230 million impairment. Division's goodwill after the impairment EUR 245 million. Due to the impairment, deferred tax liabilities will be decreased by approximately EUR 28 million. UPM 26

27 ACTIONS TO EXECUTE THE STRATEGY AND COMPANY VISION

28 UPM's actions to execute strategy Energy & Pulp Grow in biofuels : BTL piloting and development Grow in energy: OL3 nuclear power generation Grow in competitive pulp: Borea J/V in Russia Secure competitive biomass sourcing Paper Engineered Materials Focus on improving European profitability: cost leadership, frugal capital expenditure Grow in China and Eastern Europe Consolidate in Europe Pursue industry leadership in label materials Grow in Plywood Develop and grow new businesses based on UPM's core competencies UPM 28

29 VISION The front-runner of the new forest industry. In the new forest industry, we reshape markets through cost leadership, change readiness and leading innovation. We develop smart, sustainable products and solutions for customers worldwide. PURPOSE We create value from renewable and recyclable materials by combining expertise and technologies within fiber based, energy related and engineered materials businesses. UPM September 16,

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 including the availability and cost of production inputs, 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 of the company's Annual Report UPM 30

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