annual general meeting 2018 - upm...2008 2017 513 1,292 4,321 174 9.0 25.9 21.2 3.3 49 71 66% 85% 2...
TRANSCRIPT
ANNUAL GENERAL MEETING 2018
Jussi Pesonen
President and CEO
| © UPM
UPM redefined
2008 2017
1,292513
1744,321
25.99.0
3.321.2
7149
85%66%
2
10.09.5
1.150.4
Comparable
EBIT
Net debt
Share price
Safety
Engagement
Certified fibre
Dividend (proposal)
Sales
UPM TRANSFORMATION SUCCESS FACTORS
3 | © UPM
| © UPM4 | © UPM
OPERATING MODELMarket driven businesses
| © UPM5 | © UPM
OPERATING MODELEBIT +152% (vs. 2008)
Growing businesses > 80%
| © UPM6 | © UPM
CAPITAL ALLOCATIONDisciplined and effective
High returns
| © UPM7 | © UPM
CAPITAL ALLOCATIONNet debt reduction EUR 4.1bn
(vs. 2008)
| © UPM8 | © UPM
HIGH PERFORMING PEOPLEValue-based leadership
Actively leading performance
| © UPM9 | © UPM
HIGH PERFORMING PEOPLEEmployee engagement +45% (vs. 2008)
Productivity CAGR +4%
| © UPM10 | © UPM
INNOVATIONBiomass-based innovations
Biomolecules
| © UPM11 | © UPM
INNOVATION~300 patent applications
each year
| © UPM12 | © UPM
RESPONSIBILITYCompetitive advantage
Limitless opportunities of bioeconomy
| © UPM13 | © UPM
SHAREHOLDER VALUETotal shareholder return CAGR
2008–2017 +19%
| © UPM14 | © UPM
UPM TODAY
15 | © UPM
| © UPM16
Competitive businesses with strong
market positions
UPM
BIOREFINING
Pulp
Biofuels
Timber
UPM
ENERGY
Electricity
generation
and trading
UPM
RAFLATAC
Label materials
for product and
information
labelling
UPM
SPECIALTY
PAPERS
Label papers,
release liners,
office papers
and flexible
packaging
UPM
PAPER ENA
Magazine
papers,
newsprint and
fine papers
UPM
PLYWOOD
Plywood
and veneer
products
UPM Biochemicals
UPM Biocomposites
Wood sourcing and
forestry
OTHER
OPERATIONS
| © UPM17
Operating on healthily growing marketsUPM PLYWOOD
Plywood, veneer ~3%
UPM PAPER ENA
Graphic papers ~ –4%
UPM SPECIALTY PAPERS
Label papers ~4%
High-end office papers ~4%
UPM RAFLATAC
Self-adhesive labels ~4%UPM ENERGY
Electricity ~1%
UPM BIOREFINING
Pulp ~3%
Biofuels strong
Timber ~2%
By comparable EBIT 2017
Demand trend growth, % pa
| © UPM18
Global businesses – local presence
54production plants
in 12 countries
19,100employees
in 46 countries
12,000customers
in 120 countries
90,000shareholders
in 35 countries
25,000b-to-b suppliers
in 75 countries
UPM’s sales by market 2017
EUR 10,010 million
13%North America
62%Europe
5%Rest of the world
20%Asia
RECORD-STRONG YEAR 2017
19 | © UPM
| © UPM20
Improvement continued through
a turn in input costs environment
Sales
EUR 10,010m +2%
EBITDA
EUR 1,631m +71m
Comparable EBIT
EUR 1,292m +149m
2017 vs. 2016:
Comparable EPS
EUR 1.88 +0.23
Net debt
EUR 174m -957m
Operating cash flow
EUR 1,558m -128m
Net debt / EBITDA
0.11x -0.62x
Comparable ROE
11.9% +1.0pp
| © UPM
| © UPM21
Higher delivery volumes contributed to EBIT
growth, prices and variable costs increased
0
200
400
600
800
1 000
1 200
1 400
2016 2017
Variable
costs
Fixed
costs
Deliveries
Paper ENA
Currency,
net impact
Comparable EBIT 2017 vs. 2016
Prices
Depr.,
forests,
plantations
1,14311.6%
EURm1,29212.9%Deliveries
Other BAs
| © UPM
0,0
2,5
5,0
7,5
10,0
12,5
15,0
0
25
50
75
100
125
150
2013 2014 2015 2016 2017
EURm % of salesUPM Raflatac
0,0
2,5
5,0
7,5
10,0
12,5
15,0
0
50
100
150
200
250
300
2013 2014 2015 2016 2017
EURm % of salesUPM Paper ENA
Comparable EBIT by business area
22
0,0
2,5
5,0
7,5
10,0
12,5
15,0
0
25
50
75
100
125
150
2013 2014 2015 2016 2017
0
4
8
12
16
20
24
0
100
200
300
400
500
600
2013 2014 2015 2016 2017
0
10
20
30
40
50
60
0
50
100
150
200
250
300
2013 2014 2015 2016 2017
0,0
2,5
5,0
7,5
10,0
12,5
15,0
0
25
50
75
100
125
150
2013 2014 2015 2016 2017
EURm % of salesUPM Specialty Papers EURm % of salesUPM Plywood
EURm % of salesUPM EnergyEURm % of salesUPM Biorefining
| © UPM
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
23
Five of six businesses exceeded their
long-term return targets
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE % *)
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
0
2
4
6
8
10
12
14
16
18
20
22
24
26
28
30ROCE %
*) shareholdings in UPM Energy valued at fair value
Long-term return target
UPM
Specialty Papers
UPM
Paper ENA
UPM
PlywoodUPM
RaflatacUPM
Energy
UPM
Biorefining
FCF/CE %
| © UPM24
Consistent improvement in financial
performance
0
200
400
600
800
1 000
1 200
1 400
ComparableEBIT
Comparable figures for 2014 – 2017,
excluding special items for earlier years
EURm
Target: EBIT growth
0
2
4
6
8
10
12
14
%
ComparableROE
Target: 10%
0,0
0,5
1,0
1,5
2,0
2,5
3,0
0
750
1 500
2 250
3 000
3 750
4 500
Net debtEURm
Net debtand leverage
Net debt /EBITDA (x)
Policy: ≤ 2x
| © UPM
Outlook for 2018
• UPM reached record earnings in 2017. Fundamentals for UPM
businesses in 2018 continue to be favourable.
• Healthy demand growth is expected to continue for most of
UPM’s businesses in 2018, while modest demand decline is
expected to continue for UPM Paper ENA. Sales prices are
expected to increase in most of UPM’s businesses, compared
with 2017.
• Input costs are expected to continue increasing in 2018,
compared with 2017. UPM will continue measures to reduce fixed
and variable costs to mitigate this. 2018 starts with less
favourable currencies than 2017.
• Q1 2018 results are expected to be impacted by temporary wood
harvesting limitations in Northern Europe caused by unusually
warm and wet weather in late 2017 and the beginning of 2018.| © UPM25
| © UPM26
Dividend proposal: 21% increase
Dividend policy
• UPM aims to pay an attractive dividend,
30–40% of operating cash flow per share
Dividend proposal for 2017
• EUR 1.15 (0.95) per share, totalling
EUR 613.3m
• 39% of 2017 operating cash flow
EUR
per share
0
10
20
30
40
50
60
70
0,00
0,20
0,40
0,60
0,80
1,00
1,20
1,40
2012 2013 2014 2015 2016 2017
% of operating
cash flow per shareDividend
AIMING HIGHER
27 | © UPM
| © UPM28
Responsible
operations
and
value chain
Circular economy
Sustainable and safe solutions
for global consumer demand
High
performing
people
Sustainable
forestry
2020
2030
Innovation
Limitless opportunities of
bioeconomy
| © UPM29
Global megatrends drive demand for
sustainable and safe solutions
Population growth, urbanisation
Resource scarcity, role of renewables
Digitalisation, e-commerce
Climate change
Responsibility and compliance
| © UPM30 | © UPM
Sustainable
and safe products
for everyday use
LABEL MATERIALS
for food packaging,
drinks bottles and
for communicating
information
SPECIALTY
PAPERS
for food packaging
WOOD
MATERIALS
for construction
and design
features
TIMBER
for indoor air quality
ELECTRICITY
for lighting and
heating
PULP-BASED
MATERIALS
for packaging,
transport,
storage and
hygiene products
PUBLICATION
PAPERS
for reading and
advertising
OFFICE PAPERS
for printing
WOOD MATERIALS
for furniture and the home
LABELS
for food products
| © UPM
Biomolecules
Fibres
Logs
Trees
Biofuels
Biochemicals
Pulp
Paper
Packaging
Tissue
Labelling materials
Biocomposites
Sawn timber
Plywood
Energy
| © UPM31
Evolution of wood usage
| © UPM32
UPM strategic focus areas
| © UPM
> Continuous
improvement
We create value by seizing… …the limitless potential of bioeconomy
> Earnings growth > Growth and
competitiveness
> Continuous
improvement
Portfolio
> Develop businesses with strong long-term fundamentals and sustainable competitive advantage
Performance Growth Innovation Responsibility
| © UPM
Top performance and
spearheads for growth
High-value fibre
and wood products
Pulp Plywood
Specialty packaging
materials
Raflatac Specialty papers
Graphic papers Energy
Biofuels Biochemicals
Molecular
bioproducts
33 | © UPM
| © UPM34
Focused investments in businesses with strong
fundamentals and sustainable competitive advantage
FOCUSED INVESTMENTS
100
75
50
25
0
Sales 2017
UPM Biorefining
UPM Raflatac
UPM Specialty Papers
UPM Plywood
UPM Paper ENA
13 14 15 16 17 18 19UPM Energy
+70,000 t+100,000 t
+170,000 t
Label stock
expansion
+120m litres +360,000 t
Pulp mill
efficiency
+40,000 m3
+170,000 t
Label stock
expansion
Specialty
labels
expansion
+40,000 t
+30,000 t
+45,000 m3
-420,000 t
-160,000 t
-460,000 t
-345,000 t
-195,000 t
-280,000 t -128,000 t
-305,000 t
Power plants
CAPACITY CLOSURES AND DIVESTMENTS
| © UPM
Focused investments are delivering growth
35
Pulp CAGR +3%
Biofuels New business
Standard paper labels CAGR +5%
Films and specials CAGR +7%
Label materials CAGR +15%
Cut-size CAGR +6%
Plywood CAGR +2%
AVERAGE UPM
DELIVERY GROWTH
2013 –2017
UPM Biorefining
UPM Raflatac
UPM Specialty Papers
UPM Plywood
Sales 2017
100
75
50
25
0
| © UPM36
UPM’s current investment portfolio for
earnings growth
Focused growth projects
• Completed in Q4/17
– Kymi pulp mill expansion, Finland
– Raflatac expansion, Poland
• Construction stage
– Kaukas pulp mill expansion, Finland
– Raflatac expansion, Finland
– Jämsänkoski label papers expansion,
Finland
– Chudovo plywood mill expansion, Russia
• Feasibility study
– Nordland PM2 conversion from fine
papers to label papers, Germany
| © UPM37
UPM’s current investment portfolio for
earnings growth
Transformative prospects
• Possible new pulp mill, Uruguay
– UPM and the Government of Uruguay
signed an agreement on local
prerequisites for a possible new pulp mill.
Infrastructure projects and the pre-
engineering of the mill in progress.
• Biomolecules businesses
– Basic engineering study regarding a
potential industrial-scale biochemicals
refinery, Germany
– Exploring next steps in biofuels
| © UPM
Current operations Uruguay prospect
Establishing a competitive operating platform
in Uruguay – we are now in preparation phase II
• Plantation base
in West Uruguay
• Fray Bentos pulp mill
1.3 million tonnes
• ~100 km of river barging
for outbound logistics
• Sea port in Nueva Palmira
loading half vessels
• Ocean vessels to pulp markets
• Plantation base in Central
and North Eastern Uruguay
• Potential new pulp mill about
2 million tonnes, on-site
investment estimate EUR 2bn
• Railway with high technical
standards
• Deep sea port in Montevideo
loading full vessels
• Ocean vessels to pulp markets
38
| © UPM
Biochemicals products are sustainable and
competitive alternatives to replace fossil materials
| © UPM39
Basic engineering for an industrial-scale biochemicals biorefinery in progress
Mono Ethylene Glycol
bMEG
Textiles
Bottles & packaging
Deicing fluids
Mono Propylene Glycol
bMPG
Composites
Pharma & cosmetics
Detergents
Lignin
Lignin
Wood resins
Plastics
Foams & coatings
40% Cellulose
30%Hemi-
cellulose
25%Lignin
DISCIPLINED CAPITAL ALLOCATION
40 | © UPM
| © UPM41
Disciplined capital allocation –
5-year cumulative cash flow (2013-2017)
Industry-leading
balance sheet
Net debt /EBITDA
0.11x
EUR 6.4bn
Deleveraging
Strong operating cash flow
Attractive dividend
Focused investments
EUR 1.9bn
EUR 2.6bn
EUR 1.9bn
| © UPM42
Illustrative capital allocation(* for next 5 years,
assuming the Uruguay pulp mill investment
Industry-leading
balance sheet
Net debt /EBITDA
< 2x
Attractive dividend
EUR ~3-4bn
Performance focus
Strong cash flow
High return
investments
EUR ~3-4bnMaintain headroom
(* This is not a forecast
SHAREHOLDER VALUE
43 | © UPM
| © UPM
0
2 000
4 000
6 000
8 000
10 000
12 000
14 000
16 000
18 000
20 000
Enterprise value and dividendEURm
UPM transformation, performance and
disciplined capital allocation are reflected
in shareholder value
Cumulative dividend
Market capitalisation
Net debt
44
| © UPM45 | © UPM
UPM – The Biofore Company
Purpose
We create value by seizing the
limitless potential of bioeconomy.