UPM-Kymmene Corporation Interim Report January September Jussi Pesonen President and CEO October 31, 2006

Transcription

1 UPM-Kymmene Corporation Interim Report January September 2006 Jussi Pesonen President and CEO October 31, 2006

2 Q in focus 2006 paper demand in Europe is expected to grow slightly under 3% from 2005 Overcapacity in coated grades gets to be addressed Paper prices continue to lag cost development Operating profit improved in all divisions Deliveries increased despite capacity closures UPM's costs under control PROFIT IMPROVEMENT NUMBER 1 PRIORITY UPM profitability program: Benefits of firm actions have become evident Timely implementation is our priority 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 4 Jan-Sep '06 vs. Jan-Sep ' News SC Ctd m WFC* WFU* % 8% 1% 2% 2% *) Imports not included 3 UPM 4

5 BUSINESS DRIVERS Printing and writing papers demand in North America '000 tons Jan-Sep '06 vs. Jan-Sep '05 News SC Ctd m WFC WFU -5% -6% 0% 5% -2% '06 vs. ' Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: Cepiprint, PPPC UPM 5

6 BUSINESS DRIVERS Advertising expenditure in printed media Growth % from previous year E 07E 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 6

7 BUSINESS DRIVERS Raw material market prices vs. UPM's cost development Index 2004= Electricity (EEX) Coating materials Chemical pulp Electricity (Nordpool) 160 Bleaching chemicals Oil UPM Paper divisions* 70 Q1/04 Q2/04 Q3/04 Q4/04 Q1/05 Q2/05 Q3/05 Q4/05 Q1/06 Q2/06 Q3/06 * Cost/delivered paper ton (rolling 12months) UPM 7

8 FINANCIALS JANUARY - SEPTEMBER 2006

9 FINANCIALS JANUARY - SEPTEMBER 2006 Q1 Q key figures Q3/06 Q3/05 Change % Q1-Q Q1-Q Sales, M 2,495 2,243 11% 7,439 6,774 Operating profit, M Non-recurring items, net Operating profit excl. non-recurring items, M % EPS excluding non-recurring items, % EPS as reported, Paper deliveries, 1,000 tons 2,771 2,444 13% 8,096 7,265 EBITDA, M % 1,211 1,005 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 9

10 FINANCIALS JANUARY - SEPTEMBER 2006 EBITDA* margin of paper divisions % ** Q1-Q3 06 VAIHTOEHTO % 16.9% 13.9% * EBITDA is operating profit before depreciation, amortization and impairment charges and excluding non-recurring items ** Revised Magazine papers Newsprint Fine and speciality papers UPM 10

11 FINANCIALS JANUARY - SEPTEMBER 2006 Q1 Q operating profit* of divisions, million Q Q Change Q1-Q Q1-Q Magazine Papers 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 UPM 11

12 FINANCIALS JANUARY - SEPTEMBER 2006 Operating profit* margin by division 1(2) % Operating profit % required to cover cost of capital is about 11-12% % 5.4% 5.2% ** Q1-Q3 06 Magazine papers Newsprint Fine and speciality papers * Excluding goodwill amortization (2004) and non-recurring items ** Revised UPM 12

13 FINANCIALS JANUARY - SEPTEMBER 2006 Operating profit* margin by division 2(2) % Operating profit % required to cover cost of capital is about 4% 5.0% 4.5% ** Q1-Q3 06 Converting Wood products * Excluding goodwill amortization (2004) and non-recurring items ** As revised UPM 13

14 FINANCIALS JANUARY - SEPTEMBER 2006 Value creation % WACC pre tax Q1-Q % 5.4% 3.4% ROCE excl. nonrecurring items ROCE as reported UPM 14

15 FINANCIALS JANUARY - SEPTEMBER 2006 Gearing ratio and net interest-bearing liabilities Gearing ratio Net interest-bearing liabilities %, million Target: maximum 100% Sep Sep30 06 Ratings: Moody s Baa2 (stable), latest change October 20, 2005 S&P BBB (stable), latest change May 16, 2003 UPM 15

16 FINANCIALS JANUARY - SEPTEMBER 2006 Capital expenditure, million New production lines and units Q1-Q3 06 Change of line of production Maintenance and replacement expenditure Depreciation excl. amortization of goodwill UPM 16

17 FINANCIALS JANUARY - SEPTEMBER 2006 Major capital expenditure Investment Pulp mill investments: Kymi recovery plant Tervasaari new bleaching line Paper machine investments: (Jämsänkoski) Value 325 mill. 25 mill. 45 mill. Estimated completion Energy investments: (Shotton, Rauma, Chapelle) 155 mill. 2006, 2007 UPM Raflatac's investments: Changshu, China, a new pressure sensitive labelstock factory Dixon, USA, a new pressure sensitive labelstock factory USD 40 mill. USD 109 mill UPM 17

18 PROFITABILITY PROGRAMME

19 PROFITABILITY PROGRAMME Current status Action Production line closures: Kymi PM7 Voikkaa mill Jämsänkoski PM4 conversion Tervasaari PM6 Personnel Situation Closed ahead of schedule in June 2006 Closed ahead of schedule in June 2006 Q H is realistic and it is frontloaded Business transfers from closed production lines Completed successfully LWC 90%, WFC 95% UPM 19

20 PROFITABILITY PROGRAMME Overcapacity gets to be addressed '07 capacity closures in Europe about 1,6 million tons UPM Kymi 150' IIQ/2006 UPM Jämsänkoski 115' IQ/2007 UPM Voikkaa 410' IIQ/2006 M-Real Sittingbourne 210' 2007 SE Corbehem 250' 2006 M-Real Gohrsmühle 100' 2007 SE Varkaus 95' 2006 Myllykoski Dachau 230' 2007 mill. tons ,9 1,9 Exports 1,4 1,6 0,8 20,2 European demand and exports 10 Demand in Europe N.Am & Lat.Am Asia Capacity in Europe Coated mechanical and fine papers Capacity and demand in Europe Sources: Cepi, PPPC, EMGE, RISI, Jaakko Pöyry * 2006 estimate UPM 20

21 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 21

22 CURRENT TOPICS

23 UPM prepares to invest strongly in second generation bio-diesel New opportunity in bio fuels builds on UPM's key strengths: Strong vertical integration and know how in extracting value from biomass. UPM 23

24 CURRENT TOPICS UPM has superior competitive advantages in refining biomass into bio-diesel 1. As a forest company UPM has a strong role in the value chain: Own forests Advanced wood procurement systems Production for various end products 2. Integrated mills with capability to optimize: Right wood fractions to right products Energy balances 3. Mills located in main markets and close to raw material 4. Advanced process and project know how and R & D resources 5. Financial strength UPM 24

25 CURRENT TOPICS UPM has already efficient bio refineries Biomass logs wood chips forest residues Forest residues and side products from processes Primary fiber Bio-refineries Pulp mill "Refinery for wood fibres" Bio-diesel refinery "Refinery for forest residues" Energy generation at mill's CHP power plant UPM 25

26 CURRENT TOPICS Sustainable optimisation of gain from biomass base adds value Logs for wood products Plywood Sawn timber Forest biomass forestry harvesting assorting on site drying Fibre wood for pulp and paper Logging residue Small wood Stumps Pulp and Paper Bio-diesel Heat On-site electricity side products Bio-diesel is a natural extension for a company whose core business is adding value to wood raw material - primary fibres will remain in pulp and paper production UPM 26

27 CURRENT TOPICS UPM prepares to invest strongly in second generation bio-diesel Next steps Develop the business concept Develop the technical concept Prioritize the locations on UPM mill sites Make the investment decision on the first commercial scale plant UPM 27

28 Summary Market outlook Good paper demand continues Slight improvement in average paper prices estimated Good growth in demand for self-adhesive labelstock materials Strong markets for both plywood and sawn timber expected to continue Increase in overall costs expected to be moderate PROFIT IMPROVEMENT UPM invests in biofuels NUMBER 1 PRIORITY UPM prepares to invest strongly in second generation bio-diesel UPM utilizes its superior competitive advantages in refining biomass into bio-diesel UPM 28

29 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 29

30 UPM 30

31 BUSINESS DRIVERS Paper market price development in Europe EUR/ton Jan-Sep '06 vs. Jan-Sep '05 News SC LWC WFC WFU 5 % 0 % -1 % -2 % -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 31

32 BUSINESS DRIVERS Paper market price development in USA USD/ton Jan-Sept '06 vs. Jan-Sept '05 News SC LWC WFC WFU +11 % +3 % +2 % +5 % +13 % 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 32

33 BUSINESS DRIVERS Global chemical pulp market price USD USD/ton USD 720/t USD 660/t '00 '01 '02 '03 '04 '05 '06 PIX NBSK (Northern Bleached Softwood Kraft) PIX BHKP (Northern Bleached Hardwood Kraft) Source: FOEX October 17, 2006 UPM 33

34 BUSINESS DRIVERS Recycled paper price EUR/ton in Germany EUR 70/t 50 '00 '01 '02 '03 '04 '05 '06 Source: EUWID UPM 34