q2 results 2011 myllykoski acquisition - upm · earnings guidance for 2011 unchanged (* (* see...

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


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

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


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


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


€ million

Operating profit EUR million*)


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



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


| © 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




EUR million


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




EUR million


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




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


| © 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





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

q2 results 2011 myllykoski acquisition - upm · earnings guidance for 2011 unchanged (* (* see...

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