goldman sachs basic materials conference · goldman sachs basic materials conference jyrki salo...

GOLDMAN SACHS

BASIC MATERIALS CONFERENCE

Jyrki SaloExecutive Vice President and CFO

04 June, 2009

UPM 2

CONTENTS

� UPM brief� Financials� Coping with recession� UPM's vision and strategy

UPM 3

Other2%

Paper71%

UPM IN BRIEF Sales € 9,461 million in 2008

Energy1% Pulp

1% Forest and timber

9%Label10%

Plywood5%

% of external sales

UPM 4

UPM IN BRIEF

Sales by business groups in 2008*

Energy and pulp11 %

Forest and timber 9%

Pulp 1%

Energy 1%

Paper72 %

Engineered materials15 %

Total sales 9.5 billion euros

* % of external sales

Labels 10%

Plywood 5%

UPM 5

-75

-50

-25

0

25

50

75

100

125

150

175

200

FINANCIALSEBITDA by business area in Q1 2009

57

Energy

Pulp

Forestand

timber

Paper Label

Plywood

€ million

-55

-15

187

6

-23 -29

UPMtotal

128

Wood and pulp inventory write-down

Otheroperations

UPM 6

FINANCIALSEBITDA development in Q1 2009

0

50

100

150

200

250

300

350

400

450

500

EBITDAQ108

EBITDAQ109

€ million

337

128

Prices, currency

Deliveries

Wood costs

Energy costs Other

items

Fixed costs

Wood and pulp inventory write-down

UPM 7

FINANCIALS Cash flow and actions to preserve cash

-750

-500

-250

0

250

500

750

1 000

1 250

Q104

Q204

Q304

Q404

Q105

Q205

Q305

Q405

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

Q109

€ million, trailing 12 months

WOC reduction

Dividend cut

Capex cut

Net cash flow from operations

Cash flow after investing activities

Cash flow improvement from:

UPM 8

0

200

400

600

800

1000

04 05 06 07 08 09e

FINANCIALS Capital expenditure2009 estimate lowered to € 300 million

€ million

Depreciation excl. amortization of goodwill

Strategic investments

Operational investments

551

300

Estimate

Q1 2009 capital expenditure was € 67 million

UPM 9

0

200

400

600

800

1 000

1 200

1 400

1 600

1 800

2 000

Res

t of

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

-202

6

2027

2028

2029

2030

Committed Facilities Loans

� Liquidity on 31 March 2009 was € 1.7bn� In March, the € 1.5bn loan facility maturing in 2010 was

replaced by a new three-year € 825m facility

FINANCIALSMaturity profile – moderate repayments for the next three years

€ million

UPM 10

4 139

3 000

3 500

4 000

4 500

5 000

04 05 06 07 08 Q109

72

0

20

40

60

80

100

120

04 05 06 07 08 Q109

Gearing ratio Net interest-bearing liabilities

% € million

Target: maximum 90%

FINANCIALS Gearing ratio and net interest-bearing liabilities

Ratings: Moody’s Ba1, latest change February 13, 2009S&P BB+, latest change April 1, 2009

COPING WITH RECESSION

UPM 12

-9,0

-7,4

-5,9

-4,3

-2,8

-1,2

0,3

1,9

3,4

5,0

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009-25

-20

-15

-10

-5

0

5

10

15

20

COPING RECESSION Weaker economic growth affects demand for European graphic paper demand

Paper demand growth (%, trailing 3 month)

Sources: Cepiprint, Cepifine, OECD

Euro zone composite leading indicator

Graphic paper demand growth

Euro zone composite leading indicator

UPM 13

COPING RECESSION

Graphic Papers Demand in EuropeGraphic Papers Demand in Europe

2 400

2 600

2 800

3 000

3 200

3 400

3 600

3 800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

'000

tons

2009 2008 2007

-19,0-12 -20-22 -23'09 vs. '08

Source: Cepiprint/fine

Jan.-Apr. '09

vs.

Jan.-Apr. '08-18%WFU*

-22%WFC*

-27%Ctd m

-7%SC

-15%News

*) Imports from E. Europe included from 2005->

excl. Russia and other imports

1,1 '07 vs. '06

'08 vs. '07-2,2

UPM 14

-80

-70

-60

-50

-40

-30

-20

-10

0

10

20

Q107 Q207 Q307 Q407 Q108 Q208 Q308 Q408 Q109

Publication papers Fine and speciality papers Sawn timber Plywood

COPING RECESSION UPM's production has been curtailed to respond to changes in demand

Delivery change from previous year (%)

-26%-27%

-37%-42%

UPM 15

COPING RECESSIONCost deflation materialising with a delay

Cost breakdowntotal €8.4bn in 2008

Energy 11%

Fibre 28%

Delivery 10%

Chemicals 13%

Personnel 17%

Other 15%

� Fixed costs– permanent savings– temporary lay-offs

� Fibre costs– wood– RCP– purchased pulp

� Energy costs

� Oil-based chemicals and logistics costs

Other raw materials

6%

UPM 16

10

11

12

13

14

15

16

17

18

19

20

2004 2005 2006 2007 2008 2009

COPING RECESSION Wood prices in Finland returning to 2005 levels – 2009 still burdened by high wood costs

Fibre wood prices in Finland, € / m³

Source: Metla

UPM's wood costs expected to decrease with a

delay

Birch

Pine

6 month averagedelayed by 6 months

UPM 17

COPING RECESSION Case Paper

� Sales declined by 22%

� Higher prices maintained

� Significant reduction in fixed costs through restructuring and flexible way of working

� Lower pulp costs compensated for the increase in energy costs

EBITDA margin increased to 13.7% (11.8%)

-4%-1%-22%Sales growth, %

10,6412,7532,028Paper deliveries, 1,000 t

885209187EBITDA, M€

0%

50

11.8

1,773

Q1 2008

12,613.7EBITDA, % of sales

-26%

37

1,367

Q1 2009

-7%Paper deliveries, % change

250Operating profit, M€excl. special items

7,011Sales, M€

2008Paper

VISION AND STRATEGY

UPM 19

PURPOSE

We create value from renewable and recyclable materials by combining expertise and technologies within fibre based, energy-related and engineered materials businesses.

In the new forest industry, we reshape markets through cost leadership, change readiness and leading innovation. We develop smart, sustainable products and solutions for customers worldwide.

VISION

The front-runner of the new forest industry.

UPM 20

STRATEGY

Three Business Groups

Energy and pulp11 %

of sales

Forest and timber 9%

Pulp 1%

Energy 1%

Paper72 %

of sales

Engineered materials15 %

of sales

Total Group sales 9.5 billion euros 2008* % of external sales

Labels 10%

Plywood 5%

UPM 21

New business structure leverages the company's competitive advantages

� sets the basis for market driven operations in all three Business Groups

� develop energy related and pulp businesses

� strengthen the cost leadership by optimizing resources, production and investments as well as decreasing complexities in Paper

� increase the weight of fast growing higher value added businesses in Engineered Materials

� new segment reporting to increase transparency of the results and value creation in the company

UPM 22

STRATEGY

Strategy actions – portfolio of choices and opportunities

Energy & Pulp

Paper

Engineered Materials

� Grow in biomass based energy incl. biofuels

� Leverage high self sufficiency in electricity after OL3 nuclear power plant

� Increase share of low cost pulp

� Sawmilling for wood and biomass sourcing

� Focus on European profitability: cost leadership, supply chain management and lean investments

� Growth in China and other emerging markets

� Consolidation in Europe

� Industry leadership in label materials

� Grow in Plywood

� Develop new businesses like RFID, Wood plastic composite based on proprietary know how

UPM 23

Biomass value chain offers strategic opportunities

• forestry• harvesting• sorting on site• drying

Pulpwoodfor pulp and paper

Forest residuesSmall woodStumps

PlywoodSawn timber

PulpPaperCardboard

BiodieselHeatElectricity

Forest biomass Logsfor wood products

Recycling

UPM 24

UPM strategy - Key messages

Long term

UPM will reshape its portfolio: new markets, engineered materials and energy related bus inesses broaden our scope. Fibre based businesses continue to form the

cornerstone of our strategy.

Short to medium termSecure profitability and cash flow through undisputed cost

leadership.

UPM 25

It should be noted that certain statements herein which are not historical facts, including, without limitation, those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by "believes", "expects", "anticipates", "foresees", or similar expressions, are forward-looking statements. Since these statements are based on current plans, estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein including the availability and cost of production inputs, continued success of product development, acceptance of new products or services by the Group's targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group's patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group's products and the pricing pressures thereto, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group's principal geographic markets or fluctuations in exchange and interest rates.

Forward-looking statement

UPM 26

UPM 27

FINANCIALSEnergy

Operating profit improved

� Sales increased by 30%

� Average sales price for electricity increased by 40%

0

20

40

60

80

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09

€, million

33

51

31.4%

37.5%

n.a.40%Average price, change %

2.5

51

136

Q1 2009

2.4Electricity sales, TWh

33Operating profit M€excl. special items

105Sales, M€

Q1 2008

Operating profit excluding special items

UPM 28

FINANCIALSPulp

� Operating profit declined due to lower pulp price and lower deliveries

� Wood cost remained high

-100

-80

-60

-40

-20

0

20

40

60

80

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09

67

-93

24.9%

-66.9%

n.a.-23%Average price, change %

372

-93

139

Q1 2009

554Pulp deliveries, 1,000 t


269Sales, M€

Q1 2008

Associated company Metsä-Botnia

€, million Operating profit excluding special items

UPM 29

FINANCIALSForest and timber

-60

-40

-20

0

20

40

60

80

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09

26

-8

5.1%

-2.1%2811Fair value change of

biological assets

363

-21%

-8

385

Q12009

573Sawn timber deliveries, 1,000 m3

n.a.Average price of sawn timber, change %


508Sales, M€

Q1 2008

� Operating profit declined due 21% to lower average price and lower deliveries of sawn timber

� Wood cost remained at a high level

Fair value change of biological assets


UPM 30

FINANCIALSPaper

0

20

40

60

80

100

120

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09

5037

2.8%2.7%

� Operating profit was impacted by lower deliveries (-26%)

� Higher prices maintained

� Significant reduction in fixed costs through restructuring and flexible way of working

� Lower pulp costs compensated for the increase in energy costs

� EBITDA margin increased to 13.7% (11.8%)

2,028

4%

37

1,367

Q1 2009

2,753Paper deliveries, 1,000 t

n.a.Average price, change %


1,773Sales, M€

Q1 2008


UPM 31

FINANCIALSLabel

�

-10

0

10

20

30

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09

3-3

1.2%-1.3%

-3

223

Q1 2009


242Sales, M€

Q1 2008

� Operating profit declined due to lower deliveries

� Average sales price increased by about 9%

� Fixed costs were lower


UPM 32

FINANCIALSPlywood

� Operating profit declined due to significantly lower delivery volumes and lower prices

� Wood costs remained at a high level

� Extensive production downtime was taken at all mills

-30

-20

-10

0

10

20

30

Q1 07 Q2 07 Q3 07 Q4 07 Q1 08 Q2 08 Q3 08 Q4 08 Q1 09

21

-28

13.4%

-37.3%

133

-28

75

Q1 2009

231Plywood deliveries, 1,000 m³


157Sales, M€

Q1 2008


UPM 33

24,039

274

-0.27

-78

-17

-95

6.9

128

1,857

Q1/2009

25,841

50

0.19

188

5

193

14.0

337

2,410

Q1/2008

24,983

628

0.42

513

-489

24

12.7

1,206

9,461

2008

EBITDA, €m

% of sales

Net cash generated from operating activities, €m

Personnel at end of period

Operating profit (loss) excl. special items, €m

Special items included in operating profit, net

EPS excluding special items, €

Operating profit (loss), €m

Sales, €m

FINANCIALS

Key figures

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