q2 results 2011 myllykoski acquisition - upm · earnings guidance for 2011 unchanged (* (* see...
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UPM Q2 RESULTS 2011
MYLLYKOSKI ACQUISITION
Jussi Pesonen
President and CEO
3 August, 2011
| © UPM
Q2 2011 highlights
• Q2 2011 was a solid quarter despite challenging cost environment
• Cash flow was strong, supporting room for strategic actions
• With the Myllykoski acquisition UPM has unique momentum for a fundamental improvement in cost efficiency and profitability
• Unconditional approval from the EU Commission is a positive sign for further consolidation in the European paper business
1
| © UPM
FINANCIALS
Solid result despite challenging cost
environment
Gearing
44% -11 pp
EBITDA
EUR 751 m +110 m
Operating cash flow
EUR 446 m +135 m
Net debt
EUR 3,162 m -675 m
2
Sales
EUR 2,423 m +9%
EBITDA
EUR 372 m +5%
Operating profit (*
EUR 201 m +1%
EPS (*
EUR 0.26 -10%
*) excluding special items
Q2/2011 vs. Q2/2010 H1/2011 vs. H1/ 2010
| © UPM 3
0
50
100
150
200
250
300
350
400
450
500
EBITDA
Q1/11
EBITDA
Q2/11
FINANCIALS
Q2 2011 EBITDA increased from last year
0
50
100
150
200
250
300
350
400
450
500
EBITDA
Q2/10
EBITDA
Q2/11
EUR million
Prices,
currency
Fibre
costs
Other
variable
costs
Fixed
costs
Deliveries
Energy
costs
EUR million
Prices,
currency Fibre
costs
Other
variable
costs
Fixed
costs
Deliveries Energy
costs
353 15.9%
372 15.4%
379 16.1%
372 15.4%
Price and cost development
stabilised in Q2 vs. Q1 2011
Higher prices offset the rise
in costs in Q2 vs. Q2 2010
| © UPM
4
50
60
70
80
90
100
110
120
2007 2008 2009 2010 2011
Label Publication papersFine and speciality papers Sawn timberPlywood
FINANCIALS
Q2 2011 delivery volumes increased in Label,
Paper and Plywood from last year
Delivery volumes, indexed Q107 = 100
| © UPM
FINANCIALS
Operating profit was steady
5
-100
-50
0
50
100
150
200
250
300
EUR million
201 8.3%
199 9.0%
31 1.7%
Operating profit excluding special items
155 6.5%
| © UPM
FINANCIALS
Strong free cash flow
– supporting room for strategic actions
6
0
200
400
600
800
1 000
1 200
1 400
Q10
8
Q20
8
Q30
8
Q40
8
Q10
9
Q20
9
Q30
9
Q40
9
Q11
0
Q21
0
Q31
0
Q41
0
Q11
1
Q21
1
Operating cash flow
Cash flow after
investing activities
EUR million Cash flow, trailing 12 months
• Q2 2011 operating cash
flow was EUR 280m (102m)
• Cash flow after investing
activities was EUR 1,030m
in the past 12 months
• Fast digestion of the
additional debt from the
Myllykoski transaction
• Room for strategic actions
• Cash flow-based dividend
| © UPM
FINANCIALS
Balance sheet continued to strengthen
7
3 000
3 500
4 000
4 500
5 000
04 05 06 07 08 09 10 Q2/11
4446
0
20
40
60
80
100
04 05 06 07 08 09 10 Q2/11
Gearing ratio improved by 2pp
Net debt decreased by EUR 124m
% EUR million
Target: maximum 90%
Liquidity was EUR 1.7bn
repayments EUR 0.9bn in 2011-12
3,286 3,162
| © UPM
FINANCIALS
Earnings guidance for 2011 unchanged (*
(* See complete wording of the "Outlook"
in the Interim Report Q2 2011
• UPM guidance for operating profit excluding special items
• 2011 to improve from 2010
• H2/11 to be on about the same level as H1/11
• Guidance includes Myllykoski from 1 August onwards
• Broad-based solid demand growth has levelled off and the demand outlook for UPM’s products is largely stable in H2
• Only minor variable cost increases expected in H2 from H1/11
• Prices have increased in publication papers, label materials and plywood in Q3 from Q2/11, broadly offsetting cost increases
8
Myllykoski acquisition
| © UPM
MYLLYKOSKI ACQUISITION
Consolidation and restructuring are required
to create value in the Paper business
• UPM is determined to be the cost leader in the European paper
industry and the global leader in magazine papers
• A fundamental improvement in cost efficiency and value creation in
the Paper business are necessary. These are best achieved through
consolidation and restructuring
• The merits of the Myllykoski acquisition are clear. It creates UPM a
unique momentum for profitability improvement
UPM aims for a step change in its Paper business profitability
10
| © UPM
MYLLYKOSKI ACQUISITION
Myllykoski acquisition
UPM acquired Myllykoski Oyj and Rhein Papier GmbH
• Enterprise value EUR 900 million
• Publication paper production capacity of 2.8 million tonnes
• 0.8% stake in Pohjolan Voima Oy (PVO)
EU Commission approved the transaction on 13 July 2011
and it was completed on 1 August
Financing
• UPM issued 5 million new shares at the subscription price of
EUR 10.84 per share
• UPM raised bank loans of EUR 800 million
11
| © UPM
MYLLYKOSKI ACQUISITION
Summary of the financial impacts
Earnings and cash flow
• Preliminary estimate for annual cost synergies exceeds EUR 100 million
• Cash flow enhancing from the second half of 2011
• Earnings per share enhancing from 2012
Other
• UPM will book a one-off gain of approximately EUR 40 million in Q3 2011
• Preliminary estimate for restructuring costs and investments EUR 100-150m
Balance sheet
• Net debt increases by approximately EUR 800 million
• Gearing estimated to increase by 11 percentage points – UPM gearing on 30 June was 44%
12
| © UPM
13
Reported
1-6/2011
Adjustments Pro forma 1-6/2011
Sales, €m 4,779 722 5,501
EBITDA, €m 751 33 784
Operating profit, €m
‒ excl. special items, €m
487
399
-7
-7
480
392
Profit before tax, €m
‒ excl. special items, €m 511
355
-24
-24
487
331
Profit for the period 464 -17 447
MYLLYKOSKI ACQUISITION Pro forma financials – Group
| © UPM
MYLLYKOSKI ACQUISITION
Near term focus
• Customers and brand alignment
• UPM introduction to Myllykoski employees
– learning of best practices and achieving together
• Speed in integration and prompt capturing of
synergies
• Now access to detailed information.
The planning work to identify cost synergies is
proceeding towards announcement as soon as
possible, however latest by mid-September
14
| © UPM
Summary
• Q2 2011 was a steady quarter – earnings outlook for H2 is stable
• Broad-based demand growth has levelled off and cost increases are moderating
• Myllykoski acquisition gives UPM the momentum for a step change in its Paper business profitability
• The planning work to identify cost synergies is proceeding towards announcement as soon as possible, however latest by mid-September
15
| © UPM
-15,0
-12,0
-9,0
-6,0
-3,0
0,0
3,0
6,0
9,0
12,0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-25
-20
-15
-10
-5
0
5
10
15
20
Paper demand growth (% trailing 3 month)
Source: Cepiprint, Cepifine, OECD
Euro zone composite leading indicator (Y/Y %)
Graphic paper demand growth
Euro zone composite leading indicator
17
BUSINESS DRIVERS
Expectations for the economy affect demand for UPM’s products
| © UPM
18
8 000
8 500
9 000
9 500
10 000
10 500
11 000
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
1 500
2 000
2 500
3 000
3 500
4 000
4 500
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Source: Cepiprint/fine, PPPC
Graphic papers demand
in Europe -2% YTD Magazine and WFC papers demand
in North America -3% YTD
-7%
-3%
BUSINESS DRIVERS
Graphic papers demand
'000 tonnes '000 tonnes
| © UPM
19 19
300
400
500
600
700
800
900
1000
'03 '04 '05 '06 '07 '08 '09 '10 2011
News 45 g/m² SC rg 56 g/m²
LWC off 60 g/m² WFCr 100 g/m²
WFUr 80 g/m²
€/t
Europe
400
500
600
700
800
900
1000
1100
1200
1300
'03 '04 '05 '06 '07 '08 '09 '10 '11
News 48,8 g/m² SC 51,8 g/m²
LWC 59,2 g/m² WFCr 88,8 g/m²
WFUr off 74 g/m²
USD/t
400
500
600
700
800
900
1000
1100
1200
1300
'03 '04 '05 '06 '07 '08 '09 '10 '11
WFU s 80-120 g WFC s 128-157 g
USD/t
China North America
imported
domestic
Source: PPI, RISI
BUSINESS DRIVERS
Graphic paper prices
| © UPM
20
450
550
650
750
850
950
2006 2007 2008 2009 2010 2011
300
400
500
600
700
800
WFU LWC PIX BHKP
WFU / LWC €/ton
Source: FOEX Indexes Ltd., PPI, RISI
400
450
500
550
600
2006 2007 2008 2009 2010 2011
0
50
100
150
200
News 45 g/m² RCP
BUSINESS DRIVERS
Paper prices increased from last year’s bottom,
but fibre cost pressure continues
LWC
RCP
Newsprint BHKP
Hardwood pulp (BHKP) €/ton Newsprint €/ton RCP (ONP) €/ton
WFU
| © UPM
BUSINESS DRIVERS
Chemical pulp market prices remained
strong in Q2 2011
300
400
500
600
700
800
900
1 000
1 100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
21
USD/ton
NBSK
Northern Bleached Softwood Kraft
Source: FOEX Indexes Ltd.
BHKP
Bleached Hardwood Kraft
USD 1004/t
USD 840/t
BHKP
NBSK
Chemical pulp market prices
| © UPM
22
10
12
14
16
18
20
22
24
26
2004 Ju
l
2005 Ju
l
2006 Ju
l
2007 Ju
l
2008 Ju
l
2009 Ju
l
2010 Ju
l
2011
Spruce Pine Birch
30
35
40
45
50
55
60
65
70
75
2004 Ju
l
2005 Ju
l
2006 Ju
l
2007 Ju
l
2008 Ju
l
2009 Ju
l
2010 Ju
l
2011
Spruce Pine Birch
BUSINESS DRIVERS
Stumpage prices in Finland
€ / m³ Log prices € / m³ Pulpwood prices
Source: Metla
FINANCIALS Q2 2011
| © UPM
24
Q2/11 Q2/10 Q1-Q2/11
Q1-Q2/10
2010
Sales, €m 2,423 2,216 4,779 4,255 8,924
Sales growth (%) +9% +12%
EBITDA, €m 372 353 751 641 1,343
% of sales 15.4 15.9 15.7 15.1 15.0
Operating profit, excl. special items, €m 201 199 399 315 731
EPS excl. special items, € 0.26 0.29 0.58 0.44 0.99
Net cash from operating activities, €m 280 102 446 311 982
FINANCIALS Key financials
| © UPM
25
FINANCIALS
H1 2011 EBITDA increased by 17%
higher prices offset the rise in costs
0
100
200
300
400
500
600
700
800
900
1 000
1 100
EBITDA
H1/10
EBITDA
H1/11
EUR million Prices,
currency
Fibre
costs Energy
costs
Fixed
costs
Deliveries Other
variable
costs
641 15.1%
751 15.7%
| © UPM
26
FINANCIALS
H1 2011 EBITDA
main improvement in Paper and Pulp
0
100
200
300
400
500
600
700
800
EBITDA
H1/10
EBITDA
H1/11
EUR million
641 15.1%
Pulp
Forest
and
timber
Label Other
operations
Paper
751 15.7%
Energy
Plywood
| © UPM
FINANCIALS
Q2 2011 EBITDA increased by 5% from last
year
27
0
4
8
12
16
20
0
100
200
300
400
500
EUR million EBITDA
372 15.4%
353 15.9%
238 12.9%
313 13.2%
% of sales
| © UPM
28
FINANCIALS
Cash flow
€ million Q2/11 Q2/10 Q1-Q2/11
Q1-Q2/10
2010
EBITDA 372 353 751 641 1,343
Cash flow before change in working capital 366 360 684 610 1,301
Change in working capital -78 -224 -209 -242 -139
Finance costs and income taxes -8 -34 -29 -57 -180
Net cash from operating activities 280 102 446 311 982
Capital expenditure -51 -48 -131 -97 -241
Asset sales and acquisitions 150 2 153 11 46
Cash flow after investing activities 379 56 468 225 787
| © UPM
FINANCIALS
Balance sheet strengthened in H1 – net debt
decreased by EUR 124m and gearing by 2pp *)
29
2 500
3 000
3 500
4 000
4 500
5 000
5 500
2006
2007
2008
2009
2010
2011
1,5
2,0
2,5
3,0
3,5
4,0
4,5
Net debt, EUR million Net debt / EBITDA (trailing 12 months)
Net debt
Net debt / EBITDA
2.2
2.9
2 500
3 000
3 500
4 000
4 500
5 000
5 500
2006
2007
2008
2009
2010
2011
30
40
50
60
70
80
90
Net debt, EUR million Gearing %
Net debt
Gearing
44
55
*) from the beginning of the year
| © UPM
FINANCIALS
Maturity profile and liquidity
30
0
100
200
300
400
500
600
700
800
900
1 000
2011
2012
2013
2014
2015
2016
2017
2018
2019-2
026
2027
2028
2029
2030
EUR million
0
100
200
300
400
500
600
700
800
900
1 000
2011
2012
2013
2014
2015
2016
2017
2018
2019-2
026
2027
2028
2029
2030
EUR million
Liquidity
Liquidity on 30 June 2011 was € 1.7bn
(cash and unused credit facilities)
• syndicated credit facility EUR 500 million
• bilateral committed credit facilities EUR 900 million
Committed credit facilities EUR 1.4bn
Maturity profile of outstanding debt (* Committed credit facilities’ maturities
*) Including the additional debt from the Myllykoski acquisition on 1 August
| © UPM
FINANCIALS
Energy Q1-Q2/11 vs. Q1-Q2/10 – operating
profit decreased due to the lower sales volume
0
20
40
60
80
100
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
0
10
20
30
40
50
Q1-Q2 2011 236 Q1-Q2 2010 290
Sales EUR million
-33 Q1-Q2 2011 92 Q1-Q2 2010 125
Operating profit excluding special items
€ million
Operating profit EUR million*)
*) excluding special items
EUR million
-19%
31
% of sales • Average sales price for electricity
decreased by 3%
• Electricity sales volume was 4%
lower due to lower hydro production
as a result of the weak hydrological
situation in Finland
| © UPM
FINANCIALS
Pulp Q1-Q2/11 vs. Q1-Q2/10 – profitability
improved due to higher sales price and deliveries
-100
-50
0
50
100
150
200
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
-30
-15
0
15
30
45
60
13% Q1-Q2 2011 903 Q1-Q2 2010 796
Sales EUR million
+57 Q1-Q2 2011 303 Q1-Q2 2010 246
Operating profit EUR million*)
Operating profit excluding special items
EUR million
€ million % of sales
32
• Operating profit improved due to
higher average pulp sales price and
delivery volumes
• Higher wood costs had a negative
impact on profitability
*) excluding special items
| © UPM
FINANCIALS
Forest and Timber Q1-Q2/11 vs. Q1-Q2/10
– operating profit decreased due to smaller
increase in the fair value of biological assets
-60
-40
-20
0
20
40
60
80
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
-15
-10
-5
0
5
10
15
20
Q1-Q2 2011 834 Q1-Q2 2010 732
Sales EUR million
-51 Q1-Q2 2011 20 Q1-Q2 2010 71
Operating profit EUR million*)
*) excluding special items
Operating profit excluding special items
EUR million
€ million % of sales
14%
33
• Operating profit decreased due to a
smaller increase in the fair value of
biological assets
• The fair value of biological assets
less wood harvested increased by
EUR 13 million (50 million)
| © UPM
FINANCIALS
Paper Q1-Q2/11 vs. Q1-Q2/10 – operating loss
decreased mainly due to higher paper prices
-100
-50
0
50
100
150
200
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
-6
-3
0
3
6
9
12
Q1-Q2 2011 3,313 Q1-Q2 2010 2,941
Sales EUR million
+99 Q1-Q2 2011 −23 Q1-Q2 2010 -122
Operating profit excluding special items
Operating profit EUR million*)
*) excluding special items
EUR million
€ million % of sales
13%
34
• Operating loss decreased - break
even in Q2 2011
• Average paper price increased
by 8%
• Variable costs increased, especially
in recovered paper and chemical
pulp
| © UPM
35
Reported
1-6/2011
Adjustments Pro forma 1-6/2011
Sales, €m 3,313 722 4,035
EBITDA, €m 228 33 261
Operating profit, €m
‒ excl. special items, €m
-21
-23
-7
-7
-28
-30
Paper deliveries, 1,000 t 4,909 1,169 6,078
FINANCIALS
Pro forma financials – Paper business area
| © UPM
FINANCIALS
Label Q1-Q2/11 vs. Q1-Q2/10 – operating profit
decreased due to higher raw material costs
-10
-5
0
5
10
15
20
25
30
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
-4
-2
0
2
4
6
8
10
12
Q1-Q2 2011 571 Q1-Q2 201 540
Sales EUR million
-9 Q1-Q2 2011 38 Q1-Q2 2010 47
Operating profit excluding special items
Operating profit EUR million*)
€ million % of sales
6% EUR
million
36
• Operating profit decreased due to
higher raw material costs
• Sales prices and delivery volumes
increased
• UPM completed the acquisition of
Gumtac, the Brazilian labelstock and
slitting business of BIC Group
*) excluding special items
| © UPM
FINANCIALS
Plywood Q1-Q2/11 vs. Q1-Q2/10 – operating profit
increased due to higher deliveries and prices
-40
-30
-20
-10
0
10
20
30
Q1
08
Q2
08
Q3
08
Q4
08
Q1
09
Q2
09
Q3
09
Q4
09
Q1
10
Q2
10
Q3
10
Q4
10
Q1
11
Q2
11
-40
-30
-20
-10
0
10
20
30
Q1-Q2 2011 201 Q1-Q2 2010 173
Sales EUR million
+13 Q1-Q2 2011 3 Q1-Q2 2010 −10
Operating profit EUR million*)
*) excluding special items
Operating profit excluding special items
€ million % of sales
16% EUR
million
37
• First operating profit since the start
of the recession
• Operating profit increased mainly
due to higher delivery volumes and
increased sales prices
• Deliveries increased by 10% from
last year
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