UPM-Kymmene Corporation Changshu Mill Day September 2005 Hannu Jokisalo, Vice President & General Manager Changshu Mill
Contents Mill general information Product offering Positioning UPM 2
Changshu mill Finished goods storage PM 2 Converting plant PM 2 building PM 1 building Power plant Water treatment facility Coal yard Jetty Raflatac Walki Wisa Pulp storage UPM Changshu Mill Layout UPM 4
Changshu mill UPM 5
Mill basic facts UPM's ownership 100% The Changshu site excellent location on the Yangtzu river, near Shanghai infrastructure includes own harbour and power plant located on a 185 ha site with ample room for expansion Fine paper production capacity 800,000 t/a Total investment 1.1 billion USD Converting businesses Walki Wisa 2006 Raflatac 2007 UPM 6
History Company establishment PM2 start-up UPM ownership 100% PM1 project approved by the Board PM1 construction work started Walki Wisa converting plant construction started PM1 start-up Raflatac investment approved Dec 1995 Mar 1999 Sep 2000 Dec 2002 Sep 2003 Jan 2005 May 2005 Sep 2005 UPM 7
Changshu mill pulp supply Northern Bleached Softwood Kraft from Scandinavia and Canada Bleached Hardwood Kraft Pulp southern hemisphere fiber, Acacia and Eucalyptus from plantations pulp supply agreement with April expires in 2006 Botnia's pulp mill in Uruguay with start-up in Q3 2007 is the future main source of short fiber pulp BHKP NBSK Source: UPM UPM 8
Human resources Currently personnel 830 Average age 29 years Mainly local employees The mill is integrated in the local community Human resources strategy in nutshell: localized recruits young well educated people intensive "on-the- job" training OHSAS18001 Project intial audit received from DNV in April 2005 UPM 9
Environmental protection State-of-the-art environmental protection equipment clean production: water and power consumption per ton of paper same level as the best European mills effluent and air emissions: superior to the China national standards ISO 14001 Certification for Environmental Management System in 3/'03 Environmental Awards "Environmental Enterprise of Jiangsu Province" in 1999 "Environmentally Friendly Enterprise of Jiangsu Province" from 2000 "Top 100 Environmentally Friendly Enterprises of China" in 2003 Nominated as the "Green Enterprise of Jiangshu Province" in 2004 "Environmentally Friendly Enterprise China" audit completed and certificate to be issued soon UPM 10
UPM Changshu Objectives of the investment To implement UPM-Kymmene Paper Industry's growth strategy in the fastest growing printing paper market Our local production capacity was not adequate to support the future growth of customer segments like Office paper OEMs and office suppliers in the region Nationwide merchants in China Global Joint Venture printers/publishers in China We want to create a significant market presence in WFC in the Chinese and Japanese markets To secure Changshu mill's long term profitability UPM 11
UPM Changshu investment project Investment scope New 450,000 tons/a WFU line (PM1) WFC upgrade on PM2 Investment cost USD 470 million UPM 12
UPM Changshu investment profitability New PM investment Low fixed costs Established sales network and customer base Low operational risks Skilled, trained and enthusiastic personnel Synergies with existing PM Mill ROCE is estimated to meet Group target level UPM 13
PRODUCT OFFERING
PRODUCT OFFERING UPM's Product offering and mills Relative price UPM Finesse WFC CHANGSHU, KYMI, NORDLAND UPM Fine WFU CHANGSHU, KYMI, NORDLAND UPM Star MWC BLANDIN, KAUKAS UPM Ultra, UPM Cote LWC AUGSBURG, BLANDIN, CALEDONIA, KAIPOLA, KAUKAS, MIRAMICHI, RAUMA, STRACEL, VOIKKAA UPM Satin, UPM Matt MFC AUGSBURG, JÄMSÄNKOSKI, STRACEL, VOIKKAA UPM Cat, UPM Lux, UPM Max, UPM Eco SC AUGSBURG, JÄMSÄNKOSKI, KAJAANI, RAUMA, SCHONGAU, STEYRERMÜHL UPM Brite, UPM Opalite, UPM Color MFS CHAPELLE, KAIPOLA, KAJAANI, SCHONGAU UPM News News CHAPELLE, KAIPOLA, KAJAANI, SCHONGAU, SCHWEDT, SHOTTON, STEYRERMÜHL Relative quality UPM 15
PRODUCT OFFERING Changshu Mill - Products Office Papers Graphic Papers UPM 16
POSITIONING
POSITIONING China's top paper producers China's major producers in fine papers and LWC incl. ordered paper machines APP UPM Shandong Chenming Quanlin Paper Yueyang Paper Sun Paper Stora Enso Taishan Paper Daewoo Paper Minfeng Special Paper Ningxia Meili Zhongzhu Paper Uncoated fine paper Coated fine paper Light weight coated (LWC) 0 400 800 1200 1600 2000 2400 Million tonnes Source: Jaakko Pöyry, UPM UPM 18
POSITIONING Industry structure WFU in Asia-Pacifc - Weighted average PM capacity, 1 000 t/a - 500 Weighted average technical age 19 years STRONG UPM 400 April 300 200 100 Oji Ballarpur WEAK 0 30 25 Mondi 20 Nippon Unipac 15 APP Australian Paper Shandong Chenming 10 - Technical age, years - Advance Agro Weighted average capacity 104 000 t/a 5 0 Source: Jaakko Poyry Consulting June 2005 UPM 19
Summary Changshu mill Well established with customers, suppliers and authorities Excellent production "hub": Prime location Own harbour and power generation Synergies with Raflatac and Walki Wisa PM 1 investment project completed successfully UPM 20
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. UPM 21
UPM 22
Mill operations PM2 PM1 Paper Machine PM supplier Start-up Width/trim, m Speed, max m/min Capacity, t/a Converting department Cut-size sheeting capacity 320,000 t/a, new 15 pocket cutsize sheeter, the first one installed in Asia Folio sheeting capacity 320,000 t/a Metso 1999 8.66-1500 350,000 Metso 2005 9.73-2000 450,000 UPM 23