market driven business model heikki vappula
TRANSCRIPT
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MARKET DRIVEN BUSINESS MODEL – What does it mean to Energy and Pulp?
Heikki Vappula
President
Energy and Pulp Business Group
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2 | © UPM
Contents
• Growth through market based approach
• Energy
• Pulp
• Biofuels
• Summary
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ENERGY AND PULP Growth through market based approach in Energy and Pulp Business Group
EnergyCompetitive climate friendly energy portfolio with market presence in Nordic and Central European markets
PulpPulp production and plantation operations. Pulp market operations.
Increase the cost-competitive pulp capacity and market operations
Grow in low-emission generation and leverage market operations
BiofuelsResearch and development of advanced biofuels
Leverage the business opportunities in biofuels and biochemicals
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MARKET BASED BUSINESS MODEL IN ENERGY
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MARKET BASED BUSINESS MODEL – ENERGYUPM targets profitable growth in CO 2neutral power generation
12,5 TWh
2010
2012
2014
2016
2018
9 TWh
+ OL 3
2020
+ OL 4
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
Challenges• Energy biomass sourcing
• Renewable energy support schemes
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MARKET BASED BUSINESS MODEL – ENERGYMarket integration from regional markets to European markets is taking place
• Market models and dynamics unified • Markets merging • Price regions disappearing • Cross border trading increasing• New transmission investments
needed
Nordic region as a frontrunner Expected developments
BNL
LF
IAL
BHYUMZ
CH
PL
CZSKH
SLHR
D
European electricity, gas, emission and environment al certificate market
Key success factors:•Good quality production portfolio•European wide market operations•In-depth market intelligence
Broadly homogeneous price regions 2008
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MARKET BASED BUSINESS MODEL – ENERGYElectricity price is influenced by number of varying factors and drivers
Fundaments
WeatherRegulation
Economicgrowth
Co2price
Demand
Productioncapacity
Equity
Gasprice
Oil price
Coal price
Interestrates
Operating in marketsrequires variouscompetences:
•Long term planning for short term actions
•Optimal production and consumption balancing
•Hedging strategies
•Follow-up of technical and market indicators
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MARKET BASED BUSINESS MODEL – ENERGYIntegrated utilisation of UPM's expertise to create value for power assets and to secure competitive price for mills
External salesInternal demand
Cost based pricing
Resource based approach
• Energy as resource
• Balanced demand/supply in Nordic• Only small net external sales
Market based approach
• 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
Generation Consumption
External sales / purchaseInternal generation (mill site CHP)
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MARKET BASED BUSINESS MODEL IN PULP
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MARKET BASED BUSINESS MODEL – PULP World chemical market pulp demand growing
• Growth takes place in non-integrated pulp
million tonnes
Source Pöyry 2009
Total
Chemical pulp
BleachedMarket
0
50
100
150
200
250
300
350
400
Sulphite
Recycled paper
Mechanical pulp
Un-bleachedNon-wood
Integrated
Market BHKPMarket BSKP
0
10 000
20 000
30 000
40 000
50 000
60 000
70 000
2003
2004
2005
2006
2007
2008
2009
2010
2011
e
2012
e
2013
e
2014
e
Sulphite
UKP
BSKP
BHKP
World fibre consumption
Source PPPC 2010
Market pulp demand development 2003-2014
million tonnes
Forecast
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MARKET BASED BUSINESS MODEL – PULPGrowth focus on regions with increasing wood availability and cost efficient plantation operation s
Wood availability
Increasing
Stable / decreasing
Source: Pöyry
0
2000
4000
6000
8000
Total LatinAmerica
Asia NorthAmerica
EasternEurope
WesternEurope
'000
tonn
es
2.4%
4.7%
4.3%
1.2%1.8% 0.2%
Chemical market pulp capacity growth by region
2009 - 2014
Source: PPPC
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150
250
350
450
550
650
750
0 10 000 20 000 30 000 40 000 50 000 60 000
Cumulative capacity, 1000 t/a
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 FinlandUPM UruguayMetsä-Botnia Finland
Source: Pöyry estimate Q4/2010
World softwoodmarket pulp
World hardwoodmarket pulp
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MARKET BASED BUSINESS MODEL – PULPDriven by market based approach, UPM strengthens its position in the value chain
Resource based approach
• Pulp as resource
• Integrated pulp producer • Production in the northern hemisphere
• Pulp supplier mainly for printing and writing papers
• Cost based pricing
Market based approach
• 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
-1000
0
1000
2000
3000
4000
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
External sales
3rd party deliveries to UPM
Botnia deliveries to UPM
UPM pulp production
UPM pulp usage
1,000 t/a
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BIOFUELS
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BIOFUELSUPM's biofuel strategy
High green house gas reductions
Away from the
food chain
High quality fuels
BTLBiodiesel
Bio-oil Bioethanol
Hydrotreatedbiofuels
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SUMMARY
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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
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0
20
40
60
80
100
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
€, million Operating profit excluding special items
ENERGYSteady profit generator
41.8%34.3%36.6%25.1%EBIT %
18.6%
40.3%
26.9%18.4%9.6%ROCE %
41.6%43.3%31.1%EBITDA %
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-100
-50
0
50
100
150
200
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
€, million Operating profit excluding special items
PULPStrong year for pulp producers
34.0%-19.4%15.7%23.3%EBIT %
-7.6%
-2.8%
23.3%8.8%13.2%ROCE %
42.6%14.7%23.3%EBITDA %
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-80
-60
-40
-20
0
20
40
60
80
100
Q107
Q207
Q307
Q407
Q108
Q208
Q308
Q408
Q109
Q209
Q309
Q409
Q110
Q210
Q310
Q410
€, million Operating profit excluding special items
FOREST AND TIMBERIncrease in the fair value of forest and higher deliveries of sawn timber
11.9%1.6%-1.2%10.5%EBIT %
1.3%
1.8%
10.6%-1.2%12.7%ROCE %
3.4%-2.5%7.8%EBITDA %
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