UPM THE BIOFORE COMPANY Nordea Forest Products & Paper Seminar 2013 President and CEO Jussi Pesonen
Strategic direction of UPM s businesses Advancing in growth markets Label Paper in China, label papers Pulp Growth in lowemission energy Biofuels Energy Securing cash flow in mature markets Graphic papers in Europe and North America Plywood Timber 2 UPM
Current actions Advancing in growth markets Label expansion New speciality paper machine in China Growth in lowemission energy Biofuel refinery Schongau CHP OL3 Securing cash flow in mature markets Plan to reduce 850kt of paper capacity in 2013 Plan to reduce fixed costs by EUR 90m Timber restructuring 3 UPM
FINANCIALS
Profitability over two economic slowdowns Europe continues to underperform the other major economic zones Real GDP y-o-y growth % % 12,5 Operating profit excluding special items % of sales 12 10,0 10 7,5 5,0 2,5 BRIC US 8 6 8,3 5,4 8,2 6,8 5,3 5,8 0,0 2007 2008 2009 2010 2011 2012 2013E -2,5 Euro zone -5,0 4 2 3,5-7,5 0 Sources: Global Insight 2007 2008 2009 2010 2011 2012 Q1/13 5 UPM
UPM s business portfolio EBITDA and capital employed Paper 33% Cumulative EBITDA 2010 2012 Plywood 1% Forest and Timber 2% Energy 16% Paper 29% Capital employed 31 March 2013 Other 2% Plywood 2% Forest and Timber 15% Label 8% Pulp 41% Label 5% Energy 25% Pulp 22% 6 UPM
Consistently strong cash flow EUR million 1 400 Cash flow 1 200 1 000 Cash flow after investing activities 800 600 400 200 Operating cash flow 0 7 UPM 2007 2008 2009 2010 2011 2012 Q1/13 LTM
Cash flow-based dividend Cash flow, EUR million 1 400 1 200 1 000 800 600 0.40 400 200 Operational capex 0.60 0.60 0.55 0.45 Cash flow after operational capex EUR per share 0,90 0,80 0,70 0,60 0,50 0,40 0,30 Dividend policy at least 1/3 of net cash flow from operating activities less operational capital expenditure net cash flow calculated as an average over three years Minimum dividend by the policy EUR 0.50 per share 0 2008 2009 2010 2011 2012 Actual / proposed dividend Minimum dividend by the dividend policy 0,20 Dividend for 2012 EUR 0.60 (0.60) per share 8 UPM
Strong balance sheet Net debt, EUR million 6 000 Net debt / EBITDA (trailing 12 months) 4,5 Net debt, EUR million Gearing % 6 000 90 5 500 Net debt / EBITDA 4,0 5 500 80 5 000 3,5 5 000 Gearing 70 4 500 2.6 3,0 4 500 60 4 000 2,5 4 000 42 50 3 500 2,0 3 500 40 3 000 Net debt 1,5 3 000 Net debt 30 2 500 1,0 2 500 20 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013 9 UPM Liquidity was EUR 1.8bn at the end of Q1 2013 Repayments total EUR 228m in next 12 months 2012 figures restated
SECURING CASH FLOW IN MATURE MARKETS
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Myllykoski cost synergies achieved, new cost reduction plan proceeding as planned EURm 1 000 900 800 700 600 500 400 300 200 100 0 UPM Paper EBITDA % of sales 20 18 16 14 12 10 8 6 4 2 0 In 2012, Myllykoski synergy benefits reduced Paper business costs by EUR 170m Full cost synergies of EUR 200m were realised from Q1 2013 New plan to reduce annual fixed costs by a further EUR 90m announced in January 690kt of magazine paper capacity closed during January- April 2013, Docelles mill sales process continues 12 UPM
ADVANCING IN GROWTH MARKETS
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Biofore in action Consistent growth in label materials EURm 1 250 UPM Label sales 1 000 750 500 250 0 14 UPM
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Biofore in action UPM grows in China and in the fast developing label materials segment UPM will build a new speciality paper machine at the Changshu mill in China Government and environmental permits clear Site preparation works on-going Infrastructure works under preparation Equipment tendering process on-going New sheeting line started up Total investment CNY 3,000m (approx. EUR 390m), start-up by the end of 2014 Investment supports the good profitability of UPM s growth businesses 17 UPM
Biofore in action UPM s pulp platform for growth Fray Bentos started 2007 Pietarsaari major investment in 2004 Kymi major investment in 2008 Kaukas modernisation in 1996 Fray Bentos Pietarsaari Kymi Kaukas BHKP tonnes BSKP tonnes Total capacity Fray 1,100,000 1,100,000 Bentos Kaukas 310,000 430,000 740,000 Kymi 370,000 190,000 560,000 Pietarsaari 320,000 480,000 800,000 Total 2,100,000 1,100,000 3,200,000 18 UPM
GROWTH IN LOW-EMISSION ENERGY
Biofore in action Consistent growth in low-emission electricity generation During the past decade: 83% growth in biomass-based electricity generation 16% growth in hydropower 81% of UPM s power generation is CO 2 neutral MW 3 000 2 500 2 000 1 500 CO 2 emission neutral electricity capacity Biomass Biggest on-going projects are the Schongau CHP plant in Germany and the OL3 nuclear power plant in Finland 1 000 500 0 Hydro Nuclear +OL3 02 03 04 05 06 07 08 09 10 11 12 16e 20 UPM
Biofore in action UPM creates new business in wood-based renewable diesel UPM invests in wood-based renewable diesel production Total investment EUR 150m Production capacity 100,000 tonnes/a Technology is based on UPM s innovation and long-term development work Raw material is sustainably produced crude tall oil Residue from pulp production Outside food value chain, no indirect land use change Main product is unique renewable diesel No blend wall issues - compatible with fossil diesel EN590 quality 80% reduction in greenhouse gas emissions High energy content 21 UPM
Biofore in action UPM creates new business in wood-based renewable diesel Lappeenranta biorefinery status: Construction and commissioning works on-going, on schedule and budget Main equipment installations will start in June Fleet tests of the product started in April Recruitment of operative staff on-going Start-up in mid-2014 Investment supports the good profitability of UPM s growth businesses Potential to grow into a significant new business with good profitability 22 UPM
SUMMARY
Mature businesses Growth businesses Expanding well performing growth businesses maintaining cash flow from mature businesses Sales, EURm 8 000 6 000 4 000 2 000 0 Sales, EURm 8 000 6 000 4 000 2 000 0 24 UPM 3.1bn +43% 4.4bn 2007 2012 "5+ years" 7.6bn Energy Biofuels Pulp -11% 6.8bn Paper China, label papers Label 2007 2012 "5+ years" Paper other Timber Plywood Average EBITDA margin 21% ROCE 13% Average EBITDA margin 5%, generating free cash flow ( * Steps in well performing growth businesses Labelstock expansion Paper machine in China Biofuel refinery Fair valuation of Energy assets * ) This is not a forecast, but one scenario from some of UPM s existing growth opportunities Securing cash flow in mature businesses Closed 690kt of magazine paper capacity Docelles (160kt of fine papers) sales process continues Planned annual fixed cost savings EUR 90m Timber restructuring
What are we targeting? More than 50% of sales from well performing growth businesses in 5+ years Drive strong cash flow through improved margin, release capital from mature businesses Maintain solid balance sheet and strong cash flow Increase UPM s earnings and valuation 25 UPM
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