MARKET DRIVEN BUSINESS MODEL What does it mean to Energy and Pulp? Heikki Vappula President Energy and Pulp Business Group

Transcription

1 MARKET DRIVEN BUSINESS MODEL What does it mean to Energy and Pulp? Heikki Vappula President Energy and Pulp Business Group

2 Contents Growth through market based approach Energy Pulp Biofuels Summary 2 UPM

3 ENERGY AND PULP Growth through market based approach in Energy and Pulp Business Group Energy Competitive climate friendly energy portfolio with market presence in Nordic and Central European markets Grow in low-emission generation and leverage market operations Pulp Pulp production and plantation operations. Pulp market operations. Increase the cost-competitive pulp capacity and market operations Biofuels Research and development of advanced biofuels Leverage the business opportunities in biofuels and biochemicals 3 UPM

4 MARKET BASED BUSINESS MODEL IN ENERGY

5 MARKET BASED BUSINESS MODEL ENERGY UPM targets profitable growth in CO 2 neutral power generation 9 TWh 12,5 TWh + OL 3 + OL Strengths Versatile production portfolio Long and vast experience in electricity generation Competence in market operations 80% of fuels used for electricity generation in Finland are renewable 5 UPM Challenges Energy biomass sourcing Renewable energy support schemes

6 MARKET BASED BUSINESS MODEL ENERGY Market integration from regional markets to European markets is taking place Nordic region as a frontrunner Expected developments Market models and dynamics unified Markets merging Price regions disappearing Cross border trading increasing New transmission investments needed F NL B L D CH I CZ SL HR PL SK H BH YU MZ AL Key success factors: Good quality production portfolio European wide market operations In-depth market intelligence Broadly homogeneous price regions 20 European electricity, gas, emission and environmental certificate market 6 UPM

7 MARKET BASED BUSINESS MODEL ENERGY Electricity price is influenced by number of varying factors and drivers Fundaments Gas price Co 2 price Operating in markets requires various competences: Oil price Regulation Weather Demand Long term planning for short term actions Optimal production and consumption balancing Coal price Interest rates Economic growth Equity Production capacity Hedging strategies Follow-up of technical and market indicators 7 UPM

8 MARKET BASED BUSINESS MODEL ENERGY Integrated utilisation of UPM's expertise to create value for power assets and to secure competitive price for mills Resource based approach Market based approach Energy as resource Balanced demand/supply in Nordic Only small net external sales Energy as business Net open position grows (incl. OL3) Ability to optimize gross position Risk policy and active hedging strategy Integration benefits through strong position in the value chain External sales Internal demand Generation Consumption 8 UPM Cost based pricing External sales / purchase Internal generation (mill site CHP)

9 MARKET BASED BUSINESS MODEL IN PULP 9 UPM

10 MARKET BASED BUSINESS MODEL PULP World chemical market pulp demand growing million tonnes Total World fibre consumption Chemical pulp Mechanical pulp Recycled paper Bleached Un-bleached Non-wood Sulphite Market Integrated Market BHKP Market BSKP million tonnes Market pulp demand development Forecast Sulphite UKP BSKP BHKP 0 0 Source Pöyry e 2012e 2013e 2014e Source PPPC 20 Growth takes place in non-integrated pulp UPM

11 MARKET BASED BUSINESS MODEL PULP Growth focus on regions with increasing wood availability and cost efficient plantation operations 8000 Chemical market pulp capacity growth by region 2.4% '000 tonnes % % 0 Total Latin America Asia 1.2% North America 1.8% 0.2% Eastern Western Europe Europe Wood availability Increasing Stable / decreasing Source: PPPC 11 UPM Source: Pöyry

12 MARKET BASED BUSINESS MODEL PULP UPM's current pulp production portfolio provides excellent operational performance /t Market pulp producers' delivered cash costs to Frankfurt, EUR/t UPM Finland UPM Uruguay Metsä-Botnia Finland World softwood market pulp World hardwood market pulp Source: Pöyry estimate /20 12 UPM Cumulative capacity, 00 t/a

13 MARKET BASED BUSINESS MODEL PULP Driven by market based approach, UPM strengthens its position in the value chain Resource based approach Market based approach Pulp as resource Integrated pulp producer Production in the northern hemisphere Pulp supplier mainly for printing and writing papers Cost based pricing Pulp as business Active operator in the pulp market Production in the cost efficient regions Pulp supplier for wide range of growing end-uses Market based pricing ,000 t/a External sales 3rd party deliveries to UPM Botnia deliveries to UPM UPM pulp production UPM pulp usage 13 UPM

14 BIOFUELS

15 BIOFUELS UPM's biofuel strategy BTL Biodiesel Hydrotreated biofuels High quality fuels Away from the food chain Bio-oil Bioethanol High green house gas reductions 15 UPM

16 SUMMARY

17 Summary Combination of market based business model and strong integration benefits improves UPM's competitive advantage Driven by market based approach Energy and Pulp has good growth opportunities Market based integration means - Improved ability to respond to changes - Increased market insight leading to new opportunities - Improved business minded capabilities and competences 17 UPM

18 18 UPM

19 ENERGY Steady profit generator, million Operating profit excluding special items EBITDA % 31.1% 43.3% 40.3% 41.6% EBIT % 25.1% 36.6% 34.3% 41.8% ROCE % 9.6% 18.4% 18.6% 26.9% 19 UPM

20 PULP Strong year for pulp producers, million Operating profit excluding special items EBITDA % 23.3% 14.7% -2.8% 42.6% EBIT % 23.3% 15.7% -19.4% 34.0% ROCE % 13.2% 8.8% -7.6% 23.3% 20 UPM

21 FOREST AND TIMBER Increase in the fair value of forest and higher deliveries of sawn timber, million Operating profit excluding special items EBITDA % % -2.5% 1.8% 3.4% EBIT %.5% -1.2% 1.6% 11.9% ROCE % 12.7% -1.2% 1.3%.6% 21 UPM

22 22 UPM