Challenges for the Forest Products Industry of the North

Transcription

1 Jouko Karvinen Helsinki, Finland CEO, Stora Enso Oyj

2 Challenges for the Forest Products Industry of the North Stora Enso CEO Jouko Karvinen 14

3 Introduction Challenges for the forest products industry of the north Steps to address challenges

4 Stora Enso in Brief Stora Enso is a forest products company producing newsprint, magazine paper, fine paper, consumer board, industrial packaging and wood products 14.7 million tonnes* of paper and board 7.4 million m 3 of sawn and processed wood products Sales 2006 EUR 13 billion* Approximately employees* in more than 40 countries Market capitalisation EUR 9.5 billion (31 Oct 2007) Shares listed on Helsinki, Stockholm and New York stock exchanges * Continuing operations

5 Selected general trends From To Unlimited resources Consumption focus in Europe and NA Lack of information, analytical tools, communication Capital constraints Constraints of wood fibre, energy, water at competitive cost Rapid expansion in emerging economies Ever more powerful IT, databanks, communication, analysis Abundance of money in the world seeking profitable investment targets

6 Introduction Challenges for the forest products industry of the north Steps to address challenges

7 Change Forces Affecting European Forest Industry - examples Product demand moderately Product prices Overcapacity Long-term assets vs. short term challenges Wood supply pressures Tight wood markets Bioenergy competition Other cost pressures e.g. energy Customer needs Sustainability How to turn these into a competitive platform?

8 Fastest demand growth in emerging markets Long-term Demand Growth (%/a) of Paper & Board by Region through India Russia China Eastern Europe Middle East Latin America Africa Rest of Asia The market growth in Asia is two times bigger than in Europe and North-America combined! Average 2.1%/a Oceania 1 Western Europe 0 North America Japan Share of consumption in 2004, % Source: Jaakko Pöyry

9 Paper price development in Germany EUR/ton Jan 00 Feb 00 Mar 00 Apr 00 May Jun July 00 Aug 00 Sept 00 Oct 00 Nov Dec Jan 01 Feb 01 Mar 01 Apr 01 May 01 June 01 July 01 Aug 01 Sept 01 Oct 01 Nov 01 Dec 01 Jan 02 Feb 02 Mar 02 Apr 02 May 02 June 02 July 02 Aug 02 Sept 02 Oct 02 Nov 02 Dec 02 Jan Feb Mar 03 Apr May June 03 July Aug Sept 03 Oct 03 Nov Dec Jan 04 Feb 04 Mar 04 Apr 04 May 04 June 04 July 04 Aug 04 Sept 04 Oct 04 Nov Dec Jan 05 Feb 05 Mar 05 Apr 05 May 05 Jun 05 Jul 05 Aug 05 Sep 05 Oct 05 Nov 05 Dec 05 Jan 06 Feb Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Newsprint 45 g LWC Offset 60 g CWF Sheet 100 g SC Roto 56 g UWF - A4 Copy (B grade) Source: Pulp & Paper Week

10 Coated Magazine Paper (Example) Regional supply/demand balance North America Consumption 6,001 Capacity 5,710 Capacity Consumptio n Latin America Consumption 505 Capacity 205 W. Europe Consumption 6,843 Capacity 10,600 E. Europe Consumption 767 Capacity Other Asia: Consumption: 1,110 Capacity Japan Consumption 2,125 Capacity 1,890 Sources: Cepiprint/PPPC Africa Consumption 70 Capacity 0 Oceania Consumption 355 Capacity in 80 1,000 tonnes

11 Stora Enso Wood Supply in Europe Wood sourcing in 2006, million m 3 sub Other countries 0.1 Sweden Continental Europe 13.0 Finland 2.9 The Baltic Countries 7.1 Russia Total amount of wood (roundwood, chips and sawdust) delivered to own mills was 41.6 million m 3 (solid under bark) in The map describes the wood volumes which were sourced from each region.

12 Cost at Mill Gate Average wood costs up 15 to 25% Marginal wood costs up 45 to 65% Example Finnish Short Fibre Pulp Wood % 0% 20% Relative 40% Purchase Volume 60% 80% 100% Relative Purchase Volume 20% 65%

13 Recovered paper prices in Germany EUR / tonne 120 9/07 EUR % year-on-year 100 Used mainly for newsprint 80 9/06 EUR70 9/07 EUR93 +60% year-on-year /06 EUR58 20 Used mainly for packaging grades 0 2/06 4/06 6/06 8/06 10/06 12/06 Month / Year 2/07 4/07 6/07 8/07 Mixed paper (1.02) Deinking (news and pams) (1.11) Source: Euwid

14 Biofuels could capture a significant share of the global fuel market Billion liters As one of the largest forest based companies, Stora Enso is in a great position to build a strong presence in the biomass and bio-energy fields. Source: Tecnon; McKinsey

15 Introduction Challenges for the forest products industry of the north Steps to address challenges

16 Steps to address challenges Past 7 months: Simplify De-layering the organization From 4 divisions to 7 business areas Clarify the responsibility of individual businesses Increase transparency internally and externally Focus Sale of North American businesses Releases low returning capital Focuses the business Potential up-side retained Cut Invest Further capacity closures and divestment announced in Europe Will significantly reduce costs, particularly for wood Margins will improve at remaining mills Capital employed reduced Significant cuts in administrative personnel and costs Veracel pulp mill & plantations Pulp and paper mill project pre-feasibility study in Russia Consumer Board, New Business Innovations

17 What s next on agenda Changing industry fundamentals and dramatically higher wood costs require robust actions Stora Enso is determined to achieve its financial targets by all means The guiding objective is higher profits - through cost leadership and innovation, not size or market share Winning businesses will be grown aggressively Participate in industry restructuring

18 Conclusions From World largest paper & board company ROCE below cost of capital To Regional clear leader ROCE = 13% over the cycle Production focus Cost issues Capacity driven Customer driven Cost leadership Innovations & differentiations

19 Speakers notes

20 Demand outlook mixed but overall healthy Overall, there is still healthy growth in the global paper & board consumption However, the demand outlook varies by: Product segment Geography In general, strong growth is foreseen in emerging markets across all product segments In mature markets the growth is generally slower and the outlook more mixed: Certain product segments stagnating or even declining, e.g. Newsprint in North America E.g. commercial printing and packaging end uses still expected to grow steadily also in mature markets

21 Near-term Market Outlook Europe Publication Paper Fine Paper Packaging Boards Wood Products Demand Development Positive economic outlook and advertising business expected to support demand. Outlook remains positive for both coated and uncoated. Seasonally normal demand expected. Slow demand; weak outlook as stock levels are high. Price Development Prices for newsprint are rather stable. Some pressure remains for non-contractual magazine paper; prices, however, are expected to stabilise in Q4. European price outlook remains positive. Prices are generally stable. Increases are being implemented in some business segments. Heavy price pressure, especially in lower grades.

22 Long-term Demand Growth by Product Area through 2020 World paper demand is expected to grow by 2.1%/a in the long term. Tissue, coated woodfree papers and containerboards will be the fastest-growing product areas Demand growth, %/a Uncoated woodfree Coated woodfree Tissue Containerboards Average 2.1%/a Cartonboards 2.0 Coated mechanical Newsprint Uncoated mechanical Sack paper Other grades Share of consumption in 2004, %

23 also the absolute volume growth regarding Growth of total paper and board consumption, (Million tonnes) ~75% of volume growth Total growth in 5 years China Rest of Asia excl. Japan Latin America Eastern Europe & CIS Middle East Total Western Europe North America Japan Rest of the World 28% 20% 15% 22% 16% 23% 8% 7% 1% 13% 14% Total Source: RISI

24 China s share of global Paper & Board capacity growth has reached ~50% Share of global capacity growth, % Rest of World Japan Other Asia China 60 Europe North America 0 Source: Jaakko Pöyry Consulting 1970s 1980s 1990s 2000s

25 Coated Magazine Paper (Example) Regional supply/demand balance WORLD Consumption : Capacity: Ratio: 91% North America Consumption 6,001 Capacity 5,710 Capacity Consumptio n Latin America Consumption 505 Capacity 205 W. Europe Consumption 6,843 Capacity 10,600 E. Europe Consumption 767 Capacity Other Asia: Consumption: 1,110 Capacity Japan Consumption 2,125 Capacity 1,890 EUROPE (incl. Russia) Consumption : Capacity: Ratio: 72% Sources: Cepiprint/PPPC Africa Consumption 70 Capacity 0 Oceania Consumption 355 Capacity in 80 1,000 tonnes

26 Latin American pulp producers have a significant cost advantage BHKP, USD/Adt (indicative) Delivered costs to Rotterdam Brazilian pulp producers Manufacturing costs 0 0 5,000 10,000 15,000 20,000 25,000 - Cumulative capacity, t/a - Source: Jaakko Pöyry

27 Supply trends Structural overcapacity in Europe short/medium term Restructuring, closures and consolidation in the mature markets in North America and Western Europe Significant cost differences between regions e.g. Southern hemisphere hardwood pulp manufacturing cost roughly half of the Nordic cost levels Major paper production capacity growth in China Major pulp production capacity growth in Southern Hemisphere, especially in Latin America Cost increases (e.g. energy) and new competing uses for wood raw material - bioenergy

28 New Growth Markets Main Drivers and Focus Areas Main drivers: Low-cost local resources (raw materials, labour) -> competitive fibre Fast economic growth, low GDP per capita -> demand growth Focus areas for Stora Enso: Fibre resources, low fibre costs, growing markets Latin America Russia China - 2 sawmills - 2 packaging board mills - 1 packaging board mill being constructed - 1 fine paper mill - 1 joint venture SC-paper mill being - 1 joint venture pulp mill constructed - 1 coated mechanical paper mill - Plantations - 1 sawmill - Plantations

29 Russian export duties Announced roundwood export duty increases: 1 July 2007: from EUR 4 to EUR 10 1 April 2008: 20%, or EUR 15 min. 1 January 2009: 80%, or EUR 50 min. Duties pertain to roundwood grades, with the exception of birch timber with diameter less than 15cm Aspen duties have been introduced at EUR 5 per cubic metre If a reasonable solution to the above is not found soon - further production rationalisation will result

30 Superior sustainability performance forest industry cornerstone Sustainability is built on environmental, economic and social pillars The industry is committed to sustainable forest management We as an industry have had challenges in promoting and getting credit for our good actions CO 2 issues ever more important forest industry can make this a competitive advantage

31 Forest Industry Carbon Cycle Wood products act as carbon sinks. In addition, their production process produces biofuels. 1) Trees absorb CO 2 (both fossil and nonfossil) from the atmosphere. 2) Trees store carbon. This carbon is transferred and stored also in wood products. 3) Use of biofuels and recycling of these products release non-fossil CO 2 which is again absorbed by the trees. Emissions from biofuels are considered to be carbonneutral because CO 2 is recycled through the atmosphere and stored by growing forests. 4) Use of fossil fuels introduces new carbon to the atmosphere in the form of fossil CO 2.

32 High share of bioenergy in the forest industry to start with Paper industry is the world s largest producer and user of bioenergy Biomass fuels are a by-product of the pulp and paper industry A long value chain of wood and fibre products is resource, energy and carbon efficient The forest products industry derives a greater fraction of its energy requirements from biomass than any other industry. 50% in OECD countries

33 Biodiesel JV with Neste Oil Examples from Stora Enso Full scale pilot plant to be built at Varkaus Mill, aim is to develop a new gas purification technology Major investment in R&D with the long-term goal of building a commercial, full-scale production plant Stora Enso s role Neste Oil s role Joint technology development Supplying wood biomass Utilisation of generated heat Joint technology development Refining of the product Marketing of endproduct

34 Wood costs - Q Euro / m 3 sub Nordic Baltic Germany Europea n Russia Southern China Brazil Long fibre for chemical pulp Short fibre for chemical pulp Sources: Jaakko Pöyry, Paperloop, Stora Enso Notes These are indicative costs of wood delivered to mill or railway / port terminal European figures based on market prices, China and Brazil figures represent a range of market and cost-based prices of plantation-grown wood in certain regions 1 Euro = 1.42 USD

35 Reporting Units Reporting Unit Executive Responsible Responsibility Fine Paper Business Area Consumer Board Business Area, Merchants Business Area Industrial Packaging Business Area Magazine Paper Business Area Newsprint Business Area Wood Products Business Area Aulis Ansaharju Mats Nordlander Veli-Jussi Potka Hannu Alalauri Juha Vanhainen Elisabet Salander Björklund Fine Paper, Country Manager Finland Consumer Board, Merchants and Market Services Industrial Packaging Magazine Paper Newsprint Wood Products, Wood Supply and Pulp Supply

36 SENA Estimated Financial Impact on Stora Enso Group Annual sales reduction EUR million ( * ) EBITDA reduction EUR 189 million ( * ) Capital employed reduction EUR million Debt / Equity Ratio From 0.64 to 0.42 ( ** ) * Based on 2006 results for the divested businesses, with an average exchange rate of EUR/USD ** Including impact of reversing the impairment from EUR 1300 million to EUR 500 million in the third quarter of 2007

37 Planned closures and divestments Planned Closures Mill Summa Mill Products Newsprint, uncoated magazine and book paper Annual capacity, tonnes Anjala Mill PM1 Book paper Time of planned closure During Q After conversion of Anjala PM2 to book paper Kemijärvi Mill Long-fibre (softwood) pulp During Q Norrsundet Mill Long-fibre (softwood) pulp At the latest by the end of Q In addition, immediately after Q1 2008, Anjala Mill PM2, which produces tonnes of coated magazine paper will cease production of magazine paper and be converted to produce book paper. Planned Divestments Mill Kotka Mill Kotka Sawmill Products Laminating papers, special coated magazine paper Sawn goods Annual capacity tonnes Time of planned divestment As soon as practicable m3 If satisfactory offer received

38 Present operations in Latin America Veracel Pulp Mill in Brazil (JV with Aracruz) Annual production capacity of tonnes ha of eucalyptus plantations Exploring possibility of Veracel 2 Land purchase programmes in Brazil and Uruguay Brazil Rio Grande do Sul ( ha) Uruguay Rio Negro ( ha) Stora Enso Arapoti Acquired from IP in September 2006 Coated Mechanical (LWC) mill with annual production capacity of tonnes Sawmill with annual capacity of m ha of timberland ( ha of productive plantations) 100% of Sawmill, 80% of timberland and 20% of LWC machine sold to Arauco for USD 208 million (EUR 147 million) in October 2007 Veracel Aracruz Sao Paulo Stora Enso Arapoti Rio Grande do Sul Rio Negro Stora Enso Arapoti Land purchasing Division office Sales office

39 Expanding operations in Russia pulp and paper mill project prefeasibility study Aim to produce paper for the Russian market from Russian wood Pre-feasibility study for a pulp and paper mill in Nizhny Novgorod now ongoing; full feasibility study may follow If the results of the feasibility studies are favourable, final investment is subject to Stora Enso BoD s decision Issues to consider include: Infrastructure for logistics Forest rights Taxation

40 New Technologies and Materials for New Solutions Examples from Stora Enso Media Solutions 100% cartonboard packages for cd s & dvd s Contract packaging services to blank media brand owners Digital Solutions Value chain re-engineering Integrated digital printing & packaging systems Coming soon: Pharmaceutical Solutions Intelligent Solutions