paper focus on european profitability jyrki ovaska print -...
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2 | © UPM
PAPER
Contents
• Paper in 2010
• Paper market
• Actions so far
• Myllykoski acquisition
• Growth option in China
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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
-4.1%6.0%3.6%3.6%EBIT %
6.1%
16.1%
-4.6%3.8%3.6%ROCE %
4.4%12.6%12.8%EBITDA %
PAPERLoss-making year due to high fibre costs and low paper prices
€, million Operating profit excluding special items
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Demand pick-up after 2009 slumpPrice recovery started in 2H 2010 and continues in 2011Stock turnover improved by 7 % and year-end inventory levels lowCustomer satisfaction continued improving Paper consolidation finally taking place
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Paper in 2010 – positives and negatives
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Paper in 2010 – positives and negatives
Deep losses due to huge fibre cost increases (pulp and RCP)Collapse of the publication paper prices to all-time low levelsCost savings could not offset the cost inflation Strikes in Finland, supply disruptions in logistics
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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
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News 45 g/m² RCP
PAPER
Fibre prices squeezing paper makers' margins
LWC
RCP
NewsprintBHKP
Hardwood pulp (BHKP) €/ton Newsprint €/ton RCP (ONP) €/ton
WFU
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UPM's paper prices in 2011
• UPM has increased paper prices in the beginning of 2011. Examples in Europe:
- Magazine papers about + 5-8%
- Newsprint about + 20%
- Fine and speciality papers no material changes
• The average price for UPM's paper deliveries is expected to increase by about 6% in the beginning of the year from Q4 2010
• Publication paper prices return broadly to 2009 level
• Raw material costs have increased substantially from 2009
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Graphic papers demand is shifting to growth markets
0
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100
150
'90 '95 '00 '05 '10e '15e '20e
0
50
100
150
Source: JP, PPPC, RISI, BCG, UPM
Others
China
Japan
Europe
North America
5%
9%
0%
-1%
2%
1990-2010 CAGR 2.0% p.a. 2011-2020 CAGR 0.6% p.a.million tons
9
3%
4%
-2%
-3%
-1%
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Net capacity reduction by company6.6 million tonnes (12%) in Europe in 2005–2011e
-2000 -1500 -1000 -500 0 500 1000
OthersPortucel
Palm GroupPerlen Papier
MyllykoskiP. de Voiron/Vertaris
HolmenPaperalia S.A.
PSMArctic Paper
BurgoAbitibiBowater
Int. PaperMat. & Forest
SappiNorske Skog
UPMM-Real
Stora Enso
Source: Pöyry, UPM, public sources decided changes includednet changes '000 tons
– +
UPM has closed 1.8m tonnes in total, including North America
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0
100
200
300
400
500
600
700
800
2003 2004 2005 2006 2007 2008 2009 20100
1 000
2 000
3 000
4 000
5 000
6 000
7 000
8 000
9 000
10 000
2003 2004 2005 2006 2007 2008 2009 2010
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UPM assets are well maintained in spite of lower capital expenditure
Capital expenditure and depreciationCapital employed in Paper business area
Depreciation
Capital employed
Energy investments ~ EUR 900mPM in China ~ EUR 400m
Capex
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Winning formula in the future paper business
• Excellence at the customer interface
• Large, cost competitive mill sites with maximum on-site synergies
• Economies-of-scale in sales, operations and sourcing
• Low overhead costs and lean mentality
• Renewed working capital practices
Strong position in Energy, Pulp and Paper is key for future cost efficiency
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Energy and pulp Paper Engineered materials
• Expand in cost competitive low-emission energy
• Develop second generation biofuels
• Grow in cost competitive pulp
• Focus on European profitability
• Consolidation in Europe
• Growth in China and other growth markets
• Profitable growth in self-adhesive label materials
• Plywood renewal
• Drive product renewal and develop new businesses
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Myllykoski acquisition – strategy in the making
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Paper operations to be acquired
Source: Myllykoski
114380SCPlattling Papier (RP)
Mills Grade Cap.1,000 t
Personnel Q3/2010
Myllykoski Paper LWC, SC 600 469
MD Albbruck MWC/LWC 320 544
Lang Paper News, SC 600 413
MD Plattling LWC 400 387
Madison Paper SC 220 229
Hûrth (RP) News 310 102
TOTAL 2,830 2,600 *)
North America
Madison
Myllykoski Paper
UPM mills
Myllykoski mills
Rhein Papier
Albbruck Lang
Plattling
*) incl. non-mill personnel
Invested recently over EUR 700m on new capacity
• Plattling PM 1 (2007); 380,000 t/a of SC paper
• Hürth (2002); 310,000 t/a of newsprint
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In Europe, capacity share increases by 7 percentage points to 29% (*
Stora Enso
Norske SkogBurgo
Holmen
SCA
Lecta
Palm
OthersMyllykoski
Sappi
UPM
PUBLICATION PAPERS INCLUDING WFC CAPACITY
17*) subject to closing of the transaction
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Achieve sustainable cost structure through consolidation
Price
Costs
Transaction
Marginsqueeze
Sustainableprofitability
Declining real price trend –needed for print media
competitiveness
Continuous potential for cost savings in
a large production portfolio
Restructuring costs and investments to gain synergies
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Benefits of the Myllykoski acquisition
1919
• Forming a cost efficient European paper supplier committed to print media
• Contributing to the cost competitiveness of the print media
• Strengthening customer service and supply security closer to our customers
• Enabling efficiency improvement necessary for the future development of the European industry
• Ensuring sourcing of key inputs like fiber and energy cost efficiently in the future
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Organic growth opportunity in China
• Demand in China and other Asia is estimated to grow 6-8 %/a
• Permits have been granted to build a new paper machine in the Changshumill
• Decision subject to project feasibility, market opportunity and UPM strategic priorities in growth
• Timing is open – no investment decision has been made yet
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Summary
• 2010 was a challenging year for Paper, but not without successes
• Stable demand, increasing paper prices and moderating cost inflation provide a base for profitability improvement in 2011
• Myllykoski acquisition is a key step to improve profitability in UPM'sEuropean paper business
• With the acquisition, UPM is strengthening its position as a cost efficient reliable partner for paper customers
• China represents a growth option