upm forest of new opportunities...global pulp demand grows upm aims to grow in cost competitive pulp...
TRANSCRIPT
UPM FOREST OF NEW OPPORTUNITIES UBS Global Paper And Forest Products Conference September 12, 2012
Tapio Korpeinen
CFO
| © UPM
What are we targeting?
• More than 50% of sales from well performing
growth businesses in 5+ years
• Drive strong cash flow through improved margin,
release capital from mature businesses
• Maintain solid balance sheet and strong cash flow
• Increase UPM’s earnings and valuation
2
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Strategic direction for different businesses
Paper
Improve margins to
maximize cash flow
in Europe
Grow in emerging
markets
Pulp
Grow globally in Pulp
Energy
Grow in advanced
biofuels
Expand in low emission
power generation
3
Engineered materials
Grow globally in Label
Develop new
businesses
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0
2 000
4 000
6 000
8 000
2007 2011 "5+ years"
Actions have already reshaped the
business portfolio
4
3.1bn
4.3bn
Energy Biofuels Pulp Paper China,
label papers Label
+40%
0
2 000
4 000
6 000
8 000
2007 2011 "5+ years"
7.6bn 6.9bn -10%
Paper other Timber Plywood
Sales, EURm
Average
EBITDA margin 23%
ROCE 15%
Average
EBITDA margin 5%,
generating free cash flow
Gro
wth
busin
esses
Matu
re b
usin
esses
Sales, EURm
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Global pulp demand grows
UPM aims to grow in cost competitive pulp
5
World bleached market pulp demand by end-use and region
*Source: Hawkins Wright. End use markets for bleached kraft pulp, September 2011
WE NA China ROW Total
P&W 14% 5% 10% 9% 39%
Tissue 9% 6% 4% 8% 28%
Packaging 2% 1% 3% 2% 8%
Speciality 7% 2% 3% 4% 16%
Fluff 2% 3% 1% 4% 10%
35% 16% 21% 27% 100%
= declining market segment
= growing market segment
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UPM has world class profitability in Pulp
6
200
300
400
500
600
700
800
900
1 000
1 100
0 10 000 20 000 30 000 40 000 50 000 60 000
Cumulative capacity, 1000 t/a
USD/t Market pulp producers' delivered cash costs to Rotterdam
UPM Finland
UPM Uruguay
Source: Pöyry Q1/2012
World softwood
market pulp
World hardwood
market pulp
1 USD = 0,76 EUR
1 EUR = 1,32 USD
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0
500
1 000
1 500
2 000
2 500
3 000
02 03 04 05 06 07 08 09 10 11 15e
UPM grows in cost competitive low emission
energy generation
MW
+OL3
7
CO2 neutral electricity capacity
Nuclear
Hydro
Biomass
• During the past decade:
– 84% growth in biomass-based
electricity generation
– 15% growth in hydropower
• 79% of UPM’s power generation
is CO2 neutral
• Biggest on-going project is the
OL3 nuclear power plant
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UPM creates new business in advanced
wood-based biodiesel
• UPM invests in the world’s first advanced wood-based biodiesel
production in Lappeenranta, Finland
− Total investment of approximately EUR 150m
− Production 100,000 tonnes/a of advanced biodiesel
− Production starts in 2014
• Main product is advanced, 2nd generation biodiesel
• Raw material is sustainably produced crude tall oil,
a residue from pulp production
• Technology is based on UPM’s innovations and
long term development work
• Potential to grow into a significant new business
with good profitability
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Consistent growth in Label both in emerging
markets and in higher value added products
9
0
300
600
900
1 200UPM Raflatac sales EURm
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UPM grows in China and in the fast
developing label materials segment
• Increase presence in the fast growing Asian
paper segments and strengthen position in the
label materials value chain
• UPM will build a new paper machine at the
Changshu mill in China
− Capable of producing up to 360,000 tonnes of uncoated
woodfree grades and high quality label papers
• Total investment CNY 3,000m (EUR 390m),
start-up in Q4 2014
• Investment supports the good profitability
of UPM’s growth businesses
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Further improvement in cost competitiveness
in Paper through Myllykoski acquisition
Cost synergies are expected
to total EUR 200m
H2
2011
H1
2012
H2
2012
H1
2013
• In H1 2012, synergy benefits
reduced Paper business’
costs by about EUR 70m
• More than EUR 150m
synergies are expected to
affect the 2012 results
• Full cost synergies of
EUR 200m are expected to
be visible in 2013
Fixed
costs
Variable
costs
11
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Paper prices close to marginal producers’ cash costs
– UPM optimises cash flow through low costs and
low investment needs
2004 2005 2006 2007 2008 2009 2010 2011 2012
12
Cash cost of a marginal producer
Price
EUR/t
Source: PPI, RISI, Pöyry
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Cash generative businesses
-500
0
500
1 000
1 500Cumulative cash flow from businesses after capex, 2009-2011 EUR m
Average 2009-2011
cash flow (* after capex,
% of BA capital employed
23%
14%
15%
8%
3%
-6%
13
*) before interest and taxes
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0
2 000
4 000
6 000
8 000
2007 2011 "5+ years"
Expanding well performing growth businesses
with cash flow from mature businesses
14
3.1bn
4.3bn
Energy Biofuels Pulp Paper China,
label papers Label
+40%
0
2 000
4 000
6 000
8 000
2007 2011 "5+ years"
7.6bn 6.9bn -10%
Paper other Timber Plywood
Growth actions
• Paper machine in China
• Biofuel refinery
• Gascogne labelstock
acquisition
Actions in mature areas
• Divestment of
Metsä Fibre shares
• Divestment of
packaging papers
• Myllykoski synergies
and asset restructuring
• Exit of Stracel paper mill
• Schongau CHP
• Plywood, Timber
restructuring
Sales, EURm
(*
*) This is not a forecast, but one
scenario from some of UPM’s
existing growth opportunities
Average
EBITDA margin 23%
ROCE 15%
Average
EBITDA margin 5%,
generating free cash flow
Gro
wth
busin
esses
Matu
re b
usin
esses
Sales, EURm
FINANCIAL PERFORMANCE
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Operating profit excluding special items
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Profitability over two economic slowdowns
Europe is in second recession in four years
-5
0
5
10
15
2000 2005 2010 2015 2020
Europe
China
USA
Real GDP y-o-y growth %
Sources: Global Insight
8.2
6.0
7.2
8.3
5.4
3.5
6.8
5.2
0
2
4
6
8
10
12
2005 2006 2007 2008 2009 2010 2011 H1/12
% of sales
Target over 10%
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0
200
400
600
800
1 000
1 200
1 400
2005 2006 2007 2008 2009 2010 2011 LTM Q2/12
Consistently strong cash flow
17
Operating cash flow
Cash flow
after investing
activities
Cash flow EUR million
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Low needs for major investments to
maintain existing assets
18
0
200
400
600
800
1 000
1 200
06 07 08 09 10 11 12e 13e
€ million
Operational investments
350
Capital expenditure
Strategic investments
Depreciation
Uruguay
acquisition
Estimate
Myllykoski
acquisition
340
500
Projects in
2012-13
Biofuels
China PM
Schongau
CHP
Low
investments
in mature
businesses
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0,20
0,30
0,40
0,50
0,60
0,70
0,80
0,90
0
200
400
600
800
1 000
1 200
1 400
2006 2007 2008 2009 2010 2011
Cash flow based dividend
Cash flow,
EUR million
EUR per
share
0.40
0.45
0.55
Actual / proposed dividend
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Dividend policy
• at least 1/3 of net cash flow from
operating activities less
operational capital expenditure
• net cash flow calculated as an
average over three years
Dividend for 2011
• EUR 0.60 (0.55) per share
Operational capex
Minimum dividend by the dividend policy
Cash flow after operational capex
0.75 0.60
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Strong balance sheet
20
2 500
3 000
3 500
4 000
4 500
5 000
5 500
6 000
2008
2009
2010
2011
2012
1,0
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
2.6
2.2
2 500
3 000
3 500
4 000
4 500
5 000
5 500
6 000
2008
2009
2010
2011
2012
20
30
40
50
60
70
80
90
Net debt, EUR million Gearing %
Net debt
Gearing
46
44
SUMMARY
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Experience and execution(*
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M&A Investments Closures, restructuring
Uruguay acquisition Changshu paper machine Albruck paper mill
Myllykoski acquisition Investment in biodiesel refinery Myllykoski paper mill
Acquisition of PVO shares Schongau CHP Kajaani paper mill
Divestment of packaging
papers
Kaukas CHP Tervasaari pulp mill
Acquisition of Gascogne and
Gumtac in Label
Caledonian CHP Miramichi paper mill
Divestment of Metsä Fibre
Kymi pulp mill rebuild Voikkaa paper mill
Divestment of RFID business Label factories in Poland, US,
China
Restructuring of Label’s
European operations
Divestment of Tikhvin Materials recovery facility in
Shotton paper mill
Restructuring in Plywood and
Timber
*) some recent examples
| © UPM
What are we targeting?
• More than 50% of sales from well performing
growth businesses in 5+ years
• Drive strong cash flow through improved margin,
release capital from mature businesses
• Maintain solid balance sheet and strong cash flow
• Increase UPM’s earnings and valuation
23