UPM Competitive Advantage in Magazine Paper Business Jyrki Ovaska, President Magazine Papers Division UPM-Kymmene Corporation Capital Market Day November 9, 2004
UPM Strategic Frame We lead. We learn. Vision The most attractive company in our industry. Key Success Factors Customer success Skilled and motivated people Cost leadership Profitable Growth Copyright UPM-Kymmene 2
Strategy: Focus in selected businesses Businesses Papers Converted products Wood products Magazine papers Newsprint Fine papers Label papers Envelope papers Self-adhesive labelstock Siliconized papers Industrial wrappings Plywood Sawn goods UPM's market positions Europe Global 1 1 2 5 3 9 1 1 1 2 2 1 1 1 1 3 Copyright UPM-Kymmene 3
Consolidation of global SC & LWC producers based on capacities 2003 ktons 20 000 18 000 Rest of producers Other top 5 excl. UPM UPM 16 000 14 000 45% 12 000 10 000 8 000 6 000 4 000 2 000 0 28% 50% 22% SC Source: UPM-Kymmene, Jaakko Pöyry August 2003 34% 21% LWC Copyright UPM-Kymmene 4
UPM Magazine Papers Key strengths Global activities Production in all major consumption areas and an extensive sales network worldwide Clear business focus and good market positions Global leader in magazine papers with a full product offering Long term customer relations Local, multinational and global customers Comprehensive logistics network Global and efficient with critical mass Innovative customer solutions Copyright UPM-Kymmene 5
UPM Magazine Papers Key strengths Economies-of-scale Scale of operations Leverage in conducting business Skilled personnel Committed, educated and motivated professionals Modern, efficient machinery Low cost production facilities coupled with quality leadership and service excellence Strong vertical integration High self sufficiency in key production inputs Chemical pulp and recycled paper Electricity Wood raw material Copyright UPM-Kymmene 6
UPM Magazine Papers 13 Mills, 24 Paper Machines in 7 Countries Mills producing Magazine Paper "Changshu-gateway to Asia" Global activities Copyright UPM-Kymmene 7
The most comprehensive printing paper sales network in the world Sales company Sales agent Logistics organization Global activities Copyright UPM-Kymmene 8
Global operations Synergy from Changshu in Asia Changshu introduces light weight coated fine paper in 2005 to complement European LWC / SC-deliveries Beijing Changshu Existing PM 350,000 t/a New PM 450,000 t/a* Seoul Tokyo Shanghai Hong Kong Singapore * Changshu new PM start-up in 2005 Sales office Production plant Global activities Copyright UPM-Kymmene 9
Continuous improvement in customer intimacy Treating customer challenges as our own (win-win) Leading edge customer integration Investing in people and superior technology Long term commitment Long term customer relations Copyright UPM-Kymmene 10
Complete product offering allows one-stop shopping Relative price UPM Finesse UPM Fine WFU WFC 3 paper machines 3 paper machines UPM Star MWC 2 paper machines UPM Ultra, UPM Cote LWC 9 paper machines UPM Satin, UPM Matt MFC 4 paper machines UPM Cat, UPM Lux, UPM Max, UPM Eco UPM Brite,UPM Opalite, UPM Book, UPM Color MFS SC 4 paper machines 6 paper machines UPM Norm News 7 paper machines Long term customer relations Relative quality Copyright UPM-Kymmene 11
Excellent customer perception Brand Awareness Overall Product Quality Reliable Delivery Complete Product Line Technical Service Salesforce Customer Service Long-Term Commitment Europe (2004) SC LWC 1 1 1 1 1 1 1 1 1 1 1 1 1 3 1 1 Source: MGT, EXCC Long term customer relations Copyright UPM-Kymmene 12
Efficient, high volume logistic corridors Over 1.8 million tonnes of paper exported annually outside producing areas USA Russia + other CIS countries South America Middle East Far East Comprehensive logistics network Copyright UPM-Kymmene 13
Cost cutting programme 2003-2004 200 25 Capital costs Variable costs Fixed costs 150 100 50 85 90 100% 0 Target 200 million 2.3% of costs Achieved at end June 2004 Economies-of-scale Copyright UPM-Kymmene 14
Knowledgeable and motivated people make the difference Own vocational schools in Finland Apprenticeship programs Dynamic and continuous competence development Active job rotation to share best practices UPM invests in people and superior technology Skilled personnel Copyright UPM-Kymmene 15
Cost curves of European Magazine PMs delivered to Central Europe SC PMs in Europe LWC PMs in Europe I II III IV I II III IV 0 1000 2000 3000 4000 0 1 000 2 000 3 000 4 000 Cumulative capacity, 1 000 t/a - Cumulative capacity, 1 000 t/a - 0 2 000 4 000 6 000 - Cumulative capacity, 1 000 t/a - Cumulative capacity, 1 000 t/a Modern, efficient machinery Copyright UPM-Kymmene 16
Industry structure LWC Global 500 - Weighted average PM capacity, 1 000 t/a - Weighted average technical age 14 years STRONG 400 300 UPM MeadWestvaco Bowater Burgo 200 IP Weighted average capacity 200 000 t/a Stora Enso 100 Oji Myllykoski Norske Skog Nippon Unipac WEAK 0 30 25 20 15 10 - Technical age, years - 5 0 Modern, efficient machinery Copyright UPM-Kymmene 17
Industry structure SC 1) Global 500 - Weighted average PM capacity, 1 000 t/a - Weighted average technical age 12 years STRONG 400 300 200 Weighted average capacity 207 000 t/a Irving UPM Norske Skog SCA Stora Enso Abitibi-Consolidated Fraser Bowater 100 Belgravia Myllykoski 1) Excluding SNC WEAK 0 30 25 20 15 10 5 0 - Technical age, years - Modern, efficient machinery Copyright UPM-Kymmene 18
Low and stable pulp and electricity costs High self-sufficiency * in chemical pulp 90% * in electric power 70% Strong vertical integration Copyright UPM-Kymmene 19
Reduced price volatility of key raw materials Share of own forests 10% Long term contracts with communities for RCF usage Strong vertical integration Copyright UPM-Kymmene 20
UPM Magazine Papers Recent investments & restructurings Investments Closures & Potential new project Blandin PM 3 and PM 4 closures Miramichi kraft pulp mill closure Blandin EIS & feasibility study for a new PM Costs, M 128 80 + 40 -- Completed 2003 2005 2005 Paper machine modernizations Rauma PM 2, Finland (SC) Rauma PM 4, Finland (LWC) Jämsänkoski PM 6, Finland (SC) Caledonian PM 1, United Kingdom (LWC) 31 4 25 12 2004 2004 2005 2005 Copyright UPM-Kymmene 21
SUMMARY Copyright UPM-Kymmene 22
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 rate. Copyright UPM-Kymmene 23
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