UPM. MEET THE MANAGEMENT May 26, 2009 Helsinki

Transcription

1 UPM MEET THE MANAGEMENT May 26, 2009 Helsinki

2 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 including the availability and cost of production inputs, 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.

3 UPM STRATEGY Jussi Pesonen President & CEO May 26, 2009

4 VISION The front-runner of the new forest industry. In the new forest industry, we reshape markets through cost leadership, change readiness and leading innovation. We develop smart, sustainable products and solutions for customers worldwide. PURPOSE We create value from renewable and recyclable materials by combining expertise and technologies within fibre based, energy-related and engineered materials businesses.

5 STRATEGY UPM's three business groups Energy and pulp Paper Engineered materials

6 New business structure leverages the company's competitive advantages sets the basis for market driven operations in all three Business Groups develop energy related and pulp businesses strengthen the cost leadership by optimizing resources, production and investments as well as decreasing complexities in Paper increase the weight of fast growing higher value added businesses in Engineered Materials new segment reporting to increase transparency of the results and value creation in the company

7 STRATEGY Energy & Pulp Pulp mills Hydro power assets Shares of associated companies in pulp and energy Forests & Timber Biofuels Strategy actions Grow in biomass based energy incl. biofuels Leverage high self sufficiency in electricity after OL3 nuclear power plant Increase share of low cost pulp Sawmilling for wood and biomass sourcing

8 STRATEGY Paper Magazine Newsprint Fine Speciality papers Strategy actions Focus on European profitability: cost leadership, supply chain management and lean investments Growth in China and other emerging markets Consolidation in Europe

9 STRATEGY Engineered Materials Label RFID tags and inlays Plywood Wood plastic composites Strategy actions Industry leadership in label materials Grow in Plywood Develop new businesses like RFID, Wood plastic composite based on proprietary know how

10 STRATEGY Strategy actions portfolio of choices and opportunities Energy & Pulp Grow in biomass based energy incl. biofuels Leverage high self sufficiency in electricity after OL3 nuclear power plant Increase share of low cost pulp Sawmilling for wood and biomass sourcing Paper Engineered Materials Focus on European profitability: cost leadership, supply chain management and lean investments Growth in China and other emerging markets Consolidation in Europe Industry leadership in label materials Grow in Plywood Develop new businesses like RFID, Wood plastic composite based on proprietary know how

11 Biomass value chain offers strategic opportunities Forest biomass Logs for wood products Plywood Sawn timber Recycling forestry harvesting sorting on site drying Pulpwood for pulp and paper Pulp Paper Cardboard Forest residues Small wood Stumps Biodiesel Heat Electricity

12 UPM strategy - Key messages Short to medium term Secure profitability and cash flow through undisputed cost leadership. Long term UPM will reshape its portfolio: new markets, engineered materials and energy related businesses broaden our scope. Fibre based businesses continue to form the cornerstone of our strategy.

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14 ENERGY AND PULP Tapio Korpeinen President May 26, 2009

15 ENERGY AND PULP Contents Energy and Pulp Business Group Energy Pulp Forest and timber Biofuels Conclusions

16 ENERGY AND PULP Energy and Pulp Business Group Energy Hydropower assets and shares in energy companies Pulp Pulp mills and the associated company Metsä-Botnia Forest and timber UPM's forests, wood procurement, sawmills Biofuels UPM's sales 9,461 million UPM's operating profit 513 million (excl. special items) UPM's capital employed 11.2 billion

17 ENERGY AND PULP Strategy Energy and pulp Energy and pulp are developed as market-driven businesses IMPROVED ASSET BASE: Major share of UPM's strategic investments since 2003 on energy Investments on cost competitive pulp Close uncompetitive pulp capacity DEVELOPMENT AND GROWTH: Biomass based, nuclear, and hydropower generation Growth opportunities for pulp Biofuel development TARGET: Grow in low cost, emission free energy Increase the share of low cost pulp

18 ENERGY AND PULP Favourable long-term market outlook Electricity growing demand in Europe and globally need to replace old fossil fuel-based capacity integration of the Nordic and central European markets Pulp world pulp demand expected to grow regardless of North American and European paper demand scenario low paper demand affects availability of recovered paper capacity growth where wood is cheap and readily available Biofuels demand for renewable energy is growing EU energy directives demand for biofuels and biomass

19 ENERGY AND PULP Contents Energy and Pulp Business Group Energy Pulp Forest and timber Biofuels Conclusions

20 ENERGY Low-cost, low emission electricity generation Cost competitive electricity generation regardless of fuel and CO 2 prices hydro, nuclear, biofuels-based CHP Electricity self-sufficiency 85% in 2008 net purchases 2.5TWh net seller in Finland (2.5TWh) 62% of fuels used by UPM globally were biofuels in % in Finland 30 % Total electricity generation 14.2 TWh in % 32 % 27 % Ongoing investment TVO's new reactor will add 3.5TWh of nuclear power, starting in 2012 Hydro CHP (Paper) Nuclear Thermal

21 ENERGY Low CO 2 emission electricity sources kgco 2 /MWh Carbon factor CO 2 emissions per electricity unit European average carbon factor 373 kg of CO 2 /MWh DEI Nuon RWE Drax CEZ Scottish & Southern Union Fenosa Endesa Enel EDP Vattenfall Dong E.ON Electrabel Iberdrola EDF British Energy Verbund UPM Fortum Statkraft Source: PWC 2008, UPM

22 ENERGY UPM intends to grow further in emission-free electricity UPM invests in CO 2 -free electricity generation to grow in electricity business investments joint ventures acquisitions After the start-up of TVO's OL3 in 2012 UPM's capacity grows by 468 MW (18%) UPM wants to participate and grow in CO 2 -free electricity market also in the future TVO's OL4 application to build a new nuclear power unit

23 ENERGY AND PULP Contents Energy and Pulp Business Group Energy Pulp Forest and timber Biofuels Conclusions

24 PULP Chemical pulp market prices USD/ton '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 PIX NBSK (Northern Bleached Softwood Kraft) PIX BHKP (Northern Bleached Hardwood Kraft) Source: FOEX Indexes Ltd.

25 PULP At current market prices over half of world market pulp capacity operates on negative EBITDA Delivered cash costs to Frankfurt, EUR/t UPM Metsä-Botnia Price 350 Best European Price Best European World softwood market pulp Cumulative capacity, 1000 t/a World hardwood market pulp Source: Pöyry estimate Q4/2008

26 PULP Operating in the economic downturn: pulp prices have fallen while wood costs are still high in Finland Jan 2005 = Apr Jul Oct 2006 Apr Jul Oct 2007 Apr Jul Oct 2008 Apr Jul Oct 2009 Apr NBSK (EUR) Pine pulpwood BHKP (EUR) Birch pulpwood Source: Metla, Board of Customs Wood prices delayed by six months Jul Oct

27 PULP Operating in the economic downturn Operating profit turned into losses due to lower pulp price and deliveries Wood cost remained high Wood and pulp inventory write downs of 38 million in Q1 2009, million Pulp Operating profit excluding special items Pulp Sales, M Q Q EBITDA Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Operating profit M excl. special items Average price, change -23% n.a Wood and pulp inventory write down Associated company Metsä-Botnia Deliveries, change -33% n.a.

28 PULP Increasing the share of low-cost pulp Investments Botnia's 1 million tonne pulp mill in Uruguay Started in November 2007 Evaluating new ventures, e.g. Borea J/V in Russia Shareholders' agreement in 2008 Investment decisions are subject to the results of the final feasibility study and necessary approvals from relevant authorities Closures In Q4 2008, UPM closed its least competitive pulp mill Tervasaari 210,000 tonnes In March 2009 Botnia closed its least competitive pulp mill Kaskinen 450,000 tonnes, UPM's share 212,000 tonnes

29 ENERGY AND PULP Contents Energy and Pulp Business Group Energy Pulp Forest and timber Biofuels Conclusions

30 FOREST AND TIMBER Forest biomass sourcing and sawmilling UPM's wood consumption was 24.8 million m³ in 2008 paper, pulp and plywood mills, sawmills and bioenergy plants supplied forest biomass equivalent to 3.4 GWh of energy Forests UPM owns 1 million hectares of forest land supplies 10% of UPM's wood consumption other forests under management 0.7 million hectares Sawmilling has an important role in biomass sourcing annual capacity for sawn timber 2.4 million m³ Forest biomass value chain is important in bioenergy

31 FOREST AND TIMBER Wood prices in Finland returning to 2005 levels 75 / m³ Log prices / m³ Fibre wood prices Jul 2005 Jul 2006 Jul 2007 Jul 2008 Jul 2009 Spruce Pine Birch Jul 2005 Jul 2006 Jul 2007 Jul 2008 Jul 2009 Spruce Pine Birch Source: Metla

32 FOREST AND TIMBER Operating in the economic downturn: sawn timber prices have fallen while log costs are still high Jan 2005 = Apr Jul Oct 2006 Apr Jul Oct 2007 Apr Jul Oct 2008 Apr Jul Oct 2009 Apr Whitewood timber Spruce logs Redwood timber Pine logs Source: Metla, Board of Customs Wood prices delayed by six months Jul Oct

33 FOREST AND TIMBER Operating in the economic downturn Operating losses mainly due to lower price and deliveries of sawn timber Cost of logs remained at a high level Fair value of biological assets increased less than a year ago, million Forest and timber Operating profit excluding special items Forest and timber Sales, M Q Q EBITDA Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Wood inventory write down Fair value change of biological assets Operating profit M excl. special items Average price of sawn timber, change Sawn timber deliveries, change -8-21% -37% 26 n.a. n.a.

34 ENERGY AND PULP Contents Energy and Pulp Business Group Energy Pulp Forest and timber Biofuels Conclusions

35 BIOFUELS UPM's biofuel development UPM's biofuel development utilises synergies within the pulp and paper value chain, instead of competing with food value chain 2nd generation biofuels high quality and lowering impact on CO 2 emissions throughout the value chain EU directive biofuels 10% of all transportation fuels by nd generation biofuels counted with 2x weight UPM is piloting concepts for biodiesel, bioethanol and bio-oil Technical requirements for investment decisions in place by the end of 2009

36 ENERGY AND PULP Contents Energy and Pulp Business Group Energy Pulp Forest and timber Biofuels Conclusions

37 ENERGY AND PULP Conclusions Low-cost, low emission electricity generation Competitive pulp mill assets Investment requirements in the current assets are low Current business environment is challenging pulp and sawn timber prices have fallen and demand is low wood costs to decline in 2H09 Favourable long-term market outlook growth opportunities in electricity, pulp and biofuels

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39 PAPER Jyrki Ovaska President May 26, 2009

40 Paper Business Group Structural advantage and cost leadership Operating in the low-demand environment Conclusions

41 PAPER Paper Business Group Publication papers (magazine papers and newsprint) and fine and speciality papers Customers are publishers, printers, merchants and paper converters 19 paper mills in Europe, China and the US, sales representation in 55 countries Paper includes the mechanical and deinked pulp production and the combined heat and power (CHP) plants operating on paper mill sites (1/3 of UPM s total power generation) Combined annual paper production capacity ~11.5 million tonnes UPM's sales 9,461 million UPM's operating profit 513 million (excl. special items) UPM's capital employed 11.2 billion Paper 72% Paper 49% Paper 52%

42 PAPER Strategy Paper Paper is well positioned and ready to benefit from industry consolidation in Europe IMPROVED COST BASE: Close uncompetitive capacity Improve operating efficiency Effective supply chain management Lean investments DEVELOPMENT AND GROWTH: Consolidation in Europe Proactive response to paper end-use developments Growth in China and other emerging markets TARGET: European profitability Growth in new markets

43 Paper Business Group Structural advantage and cost leadership Operating in the low-demand environment Conclusions

44 PAPER UPM has modern well invested assets with limited investment needs 00 Printing papers - Global - Weighted average PM capacity, t/a - APP STRONG 400 Printing papers - Europe - Weighted average PM capacity, t/a - STRONG UPM UPM 00 Domtar Stora Enso Sappi 300 Norske Skog Stora Enso Sappi SCA Holmen 00 AbitibiBowater IP Norske Skog 200 M-real Burgo Mondi Myllykoski Oji WEAK Nippon 15 - Technical age, years WEAK Technical age, years Source: Pöyry Including newsprint, MFS, SC, CWC, std. CWF, std. UWF NOTE: Currently idled Nordland PM2 is excluded from the analysis

45 PAPER Effective supply chain management Uniform modus operandi Management by supply chain KPIs (key performance indicators) Higher efficiency in order-to-delivery process Cost savings in working capital Maintaining good level of service

46 PAPER Cost inflation is easing up Chemical pulp pricing is significantly coming down European graphic papers producers Average cost structure RCP prices are declining Wood cost will remain high through Q2 and then reduce Capital charges 15 % Delivery costs 10 % Electricity prices are declining, but with a long time delay Oil based chemicals and logistics cost Temporary layoffs Fixed costs are expected to be lower Fixed costs 19 % Other variable costs 12 % Energy costs 15 % Fibre costs 29 % Source: Pöyry

47 PAPER Optimization of diversified fibre base has improved the cost structure Optimisation of diversified fibre portfolio Hardwood pulp net buyer incl. Botnia Softwood pulp net seller incl. Botnia Mechanical pulp integrated into paper production RCP procurement to be involved in the value chain Fibres used in UPM's paper production, % Diversified fibre portfolio enables development of different fiber mixes Recycled fibre (deinked pulp) Mechanical pulp Chemical pulp

48 Paper Business Group Structural advantage and cost leadership Operating in the economic downturn Conclusions

49 PAPER Weaker economic growth affects demand for European graphic paper demand Euro zone composite leading indicator 5,0 3,4 1,9 Euro zone composite leading indicator Paper demand growth (%, trailing 3 month) ,3-1,2-2,8-4,3-5,9-7,4 Graphic paper demand growth , Sources: Cepiprint, Cepifine, OECD

50 PAPER Growth of advertising expenditure recovery is forecasted from Total advertising expenditure growth, % Forecast Print media advertising growth by region (excl. direct mail), % Forecast Europe Asia Asia Europe e 2009e 2010e 2011e e 2009e 2010e 2011e North America North America Source: Zenith Optimedia March 2009

51 PAPER Development of ad-spend last 10 years change in role of print media vs. the Internet ORTH AMERICA EUROPE ASIA PACIFIC S$, billion US$, billion US$, billion Total Other Internet TV News Maga ource: Zenith Optimedia Advertising spend in current dollars March 2009

52 PAPER Regional paper demand by end-use 2008 Business forms & Envelopes Cut size Newspapers Books & Directories Business forms & Envelopes Cut size Newspapers Magazines Direct marketing Books & Directorie Direct marketing Catalogues Catalogues Magazines North America Europe Source: CEPI, GAPTRACK, UPM

53 PAPER Customers have a choice: different paper grades for the same end-use Grade End-use Newspaper Publishing Book/ Directories Magazines Advertising material Direct Catalogues marketing Consumer papers Business forms + Copy paper Envelopes Newsprint MFS SC LWC WFC WFU Paper grade's share of total end-use consumption Source: UPM 3% and below 5 10% 11 30% 31 50% over 50%

54 PAPER UPM is prepared to cope with the lower demand environment in Europe Improved cost competitiveness lower fixed costs due to less machines and improved operational efficiency of large and cost competitive production units closed 2.1 million tonnes of paper making capacity restructuring, streamlining and targeted investments achieved better product and market mix optimisation of diversified fibre base Effective supply chain management reduction of working capital improved internal efficiency

55 PAPER Paper operating in the economic downturn Sales declined by 22% Higher prices maintained Significant reduction in fixed costs through restructuring and flexible way of working Lower pulp costs compensated for the increase in energy costs Paper Sales, M Sales growth, % EBITDA, M EBITDA, % of sales Operating profit, M excl. special items Q ,367-22% Q ,773-1% ,011-4% ,6 250 Paper deliveries, 1,000 t 2,028 2,753 10,641 EBITDA margin increased to 13.7% (11.8%) Paper deliveries, % change -26% 0% -7%

56 Paper Business Group Business environment Structural advantage and cost leadership Conclusions

57 Conclusions Focus in market driven operations flexibility with good customer service and wide range of graphic papers customer segmentation for good targeting Cost competitiveness is # 1 priority cost leadership by optimising resources and production tight investment policy new ways of operating to leverage competitive advantages UPM is well positioned focus to grow in the new markets (China, Eastern Europe, Russia) readiness to benefit from industry restructuring in Europe

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59 ENGINEERED MATERIALS Jussi Vanhanen President May 26, 2009

60 Contents Engineered Materials Business Group Label Plywood New businesses Conclusions

61 ENGINEERED MATERIALS Businesses in the Business Group Label Plywood Self-adhesive label materials for product labelling and variable information printing Technical birch and spruce products for construction and industrial end-uses RFID RFID tags and inlays for information or data management Wood plastic composites for outdoor constructions UPM's sales 9,461 million UPM's operating profit 513 million (excl. special items) UPM's capital employed 11.2 billion

62 ENGINEERED MATERIALS What is common between the businesses? Higher added value businesses with growth potential Growing end-uses, UPM's market share Businesses with opportunity for renewal New end-use areas In-house know-how and development plays a significant role There are some synergy advantages but each business is operated independently and the development potential of each business is maximised

63 ENGINEERED MATERIALS Two global companies in the labelstock business UPM Raflatac Avery Dennison Other main competitor Other competitors Source: FINAT, TLMI and UPM Raflatac estimates.

64 STK Sources: finnforest.com, latvijas.lv, plysorol.fr, pyrabelisk.com, sveza.com, vanerply.se ENGINEERED MATERIALS UPM clear market leader in the plywood business 1000 m3 UPM Metsäliitto Sveza Latvijas Finieris Syktyvkar Fankom Sonae Fanerny Komi Ilim-Bratsk Vänerply

65 ENGINEERED MATERIALS UPM Raflatac market leader in RFID business Indexed inlay turnover in UPM Raflatac turnover = UPM Raflatac Avery Dennison RFID* Alien* Tagsys* KSW* Source: UPM Raflatac estimates

66 Engineered Materials Business Group Label Plywood New businesses Conclusions

67 ENGINEERED MATERIALS Label operating in the economic downturn Sales declined by 10-20% depending on the region Prices increased by 9%, which fully compensated higher raw material costs Label Sales, M EBITDA, M EBITDA, % of sales Q Q Reduction in fixed costs even before restructuring benefits materializing Operating profit, M excl. special items Average price, change -3 +9% 3 n.a. The start-up of new factory in Wroclaw successful Deliveries, change % n.a.

68 ENGINEERED MATERIALS Labelstock consumption is driven by consumer demand and shipping activity Food labelling Beverage labelling Personal Care labelling Home Care labelling Retail, Logistics & Transport labelling Current topics Consumer demand has slowed down due to economic downturn Pricing discipline Completed investments and restructuring actions have secured a competitive asset base

69 ENGINEERED MATERIALS Strategy Label Label as a cost competitive growth business IMPROVED ASSET BASE: Changshu, China 2006 Dixon, USA 2008 Wroclaw, Poland 2008 IMPROVED COST BASE: Restructuring the European operations TARGET: Cost leadership Profitable growth through new product and service launches

70 Engineered Materials Business Group Label Plywood New businesses Conclusions

71 ENGINEERED MATERIALS Plywood operating in the economic downturn Operating profit declined due to significantly lower delivery volumes and lower prices Wood costs remained at a high level write down taken Extensive production downtime was taken at all mills, million Operating profit excluding special items 30 Q Q Sales, M EBITDA Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09 Wood inventory write down Operating profit M excl. special items Average price of plywood, change % 21 n.a. -30 Plywood deliveries, change -42% n.a.

72 ENGINEERED MATERIALS Plywood demand driven by construction and transportation industry activity Construction Transportation Furniture industry Current topics Strong deceleration in construction and transportation Capacity management Cost cutting in general

73 Engineered Materials Business Group Label Plywood New businesses Conclusions

74 ENGINEERED MATERIALS New businesses: in-house know-how forms the basis for further business development RFID Basis of development: joint customer base with labelstock business and material know-how UPM has a strong position as a reliable, long-term supplier of RFID tags and inlays Current focus: make full use of Chinese factory and widen product portfolio UPM ProFi Wood plastic composite materials made from waste deriving from UPM Raflatac value chain Current focus: extension of distribution reach and ramping up new German factory Exploring new end-uses for the material

75 Engineered Materials Business Group Label Plywood New businesses Conclusions

76 Conclusions Secure the profitability in an environment of strong but temporary slowdown of demand, without risking future opportunities Seek ways to utilize the economic slowdown for improving our long-term prospects Profitable growth through new product and service launches New, synergetic and significant business opportunities Favourable long-term market outlook

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78 FINANCIALS Jyrki Salo CFO May 26, 2009

79 FINANCIALS EBITDA development in Q million Prices, currency Fixed costs Deliveries Wood costs Energy costs Other items EBITDA Q108 Wood and pulp inventory write-down EBITDA Q109

80 FINANCIALS UPM's production has been curtailed to respond to changes in demand Delivery change from previous year (%) % -27% -37% -42% Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Publication papers Fine and speciality papers Sawn timber Plywood

81 FINANCIALS Cost deflation materialising with a delay Fixed costs permanent savings temporary lay-offs Fibre costs wood RCP purchased pulp Personnel 17% Other 15% Cost breakdown total 8.4bn in 2008 Delivery 10% Fibre 28% Energy costs Oil-based chemicals and logistics costs Other raw materials 6% Chemicals 13% Energy 11%

82 FINANCIALS Wood prices in Finland returning to 2005 levels 2009 still burdened by high wood costs Fibre wood prices in Finland, / m³ Pine UPM's wood costs expected to decrease with a delay Birch 6 month average delayed by 6 months Source: Metla

83 FINANCIALS Cash flow, million Q Q EBITDA ,206 Cash flow before change in working capital ,052 Change in working capital Finance costs and income taxes Net cash from operating activities Capital expenditure Cash flow after capex Asset sales and acquisitions Cash flow after investing activities

84 FINANCIALS Cash flow and actions to preserve cash million, trailing 12 months Net cash flow from operations Cash flow after investing activities Q104 Q204 Q304 Q404 Q105 Q205 Q305 Q405 Q106 Q206 Q306 Q406 Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109 Cash flow improvement from: WOC reduction Dividend cut Capex cut

85 FINANCIALS Capital expenditure 2009 estimate 300 million million Estimate Depreciation excl. amortization of goodwill Strategic investments 200 Operational investments e Q capital expenditure was 67 million

86 FINANCIALS Maturity profile moderate repayments for the next three years Liquidity on 31 March 2009 was 1.7bn In March, the 1.5bn loan facility maturing in 2010 was replaced by a new three-year 825m facility million Rest of Committed Facilities Loans

87 FINANCIALS Conclusions # 1 Priority: cash preservation and profitability Cost deflation materialising with a delay Solid balance sheet and good liquidity Balance demand and supply with temporary lay-offs

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