UPM THE BIOFORE COMPANY. Investor presentation February 2016

Transcription

1 THE BIOFORE COMPANY Investor presentation February 216

2 in transformation Business portfolio, sales 23: integrated paper company 28: towards marketdriven businesses 215: six separate businesses 1 % 1 % 1 % 8 % 6 % 4 % Sold units Paper Plywood Raflatac 8 % 6 % 4 % Sold units Paper Plywood Raflatac 8 % 6 % 4 % Paper ENA Plywood Energy Paper Asia Raflatac 2 % Sawmilling 2 % Sawmilling 2 % Biorefining % 23 % 28 % 215 Other operations Sales EBIT ( * Net debt Market cap Personnel 2 EUR 9.8bn EUR 429m EUR 4.9bn EUR 7.9bn 34,5 EUR 9.5bn EUR 513m EUR 4.3bn EUR 4.7bn 25, EUR 1.1bn EUR 898m EUR 2.1bn EUR 9.2bn 19,6 * ) excluding special items. EUR 265 million forest fair value increase in 215 excluded for comparability

3 businesses by EBITDA generation and capital employed EBITDA 215 EUR 1,35m Capital employed, December 215 EUR 11.bn Plywood Paper ENA Biorefining Other operations Plywood Biorefining Paper Asia 3 Raflatac Energy Paper ENA Paper Asia Raflatac Energy

4 strategy in action Plywood: Otepää expansion Plywood Biofuels: Lappeenranta biorefinery Pulp: 1% capacity increase Biorefining 2. EBITDA target for growth projects EUR 2m 3. Business portfolio development and value creation Paper ENA 1. Continuous cost efficiency improvement Energy Raflatac Paper Asia Labelling materials: Changshu expansion Self-adhesive labels: expansion in growth markets and in higher value added products 4. New businesses BIOFUELS BIOCHEMICALS BIOCOMPOSITES 4

5 Strengths of s model Attractive dividend Focused investments Strong cash flow Top performance Industry-leading balance sheet 5

6 Profit improvement programme exceeded its targets both in fixed and variable costs EUR million Annualised cost reduction impact of the programme reached EUR 165m in Q4 15, compared with Q3 14. EUR 15m target exceeded by 1% Variable cost savings 5 6 Q314 Q414 Q115 Q215 Q315 Q415 ( * 8, tonnes of publication paper capacity in Europe: four paper machines were closed in H1 15 Fixed cost savings from closures ( *

7 Several growth projects completed focus turns to reaping the benefits in 216 and beyond Pietarsaari pulp mill expansion 7,t Fray Bentos pulp mill expansion 1,t Lappeenranta biorefinery 12m litres of renewable diesel Kymi pulp mill expansion 17,t Kaukas pulp mill efficiency improvement, paper and pulp decoupling completed Capex so far EUR 66m Remaining capex EUR 11m Q2 214 Q3 214 Q4 214 Q1 215 Q2 215 Q3 215 Q4 215 Q1 216 Q2 216 Q3 216 Q Raflatac 5% expansion in APAC, growth in filmic labelstock in Poland Paper Asia Changshu new speciality paper machine 36,t Plywood Otepää mill expansion to 9,m 3

8 Portfolio development and value creation Biorefining Performance: targeting top performance in each business Plywood Paper Asia Grow businesses with strong long-term fundamentals: focused investments and synergistic M&A Paper ENA Energy Raflatac Simplify: best value realisation for Consolidation in European paper market, without increasing capital 8

9 New businesses based on s development work Biofuels: renewable diesel suitable for all diesel engines Biochemicals: renewable drop-in alternatives for oilbased chemicals Biocomposites: for injection moulding to replace oil-based raw materials Annual patent filings

10 Group profitability and targets % of sales Operating profit % ROE EURm Gearing % ( * ( * 1 Min target Max gearing Gearing Operating profit excl. special items 2 ROE excl. special items 1 Net Debt 2 ( * the figures include the EUR 265 million increase in the fair value of the forests in Finland in Q

11 Business area returns and long-term targets Energy Biorefining Paper Asia Paper ENA Plywood Raflatac ROCE % ( * ROCE % ROCE % CF/CE % ROCE % ROCE % ( * shareholdings in Energy valued at fair value Long-term return target 11

12 Q4 215 growth projects started to deliver, record-strong balance sheet Q4 215 vs. Q4 214: Sales EUR 2,574m +2% EBITDA EUR 363m +29m Operating profit ( * EUR 225m -5m Profit before tax ( * EUR 219m +3m EPS ( * EUR vs. 214: ROE ( * 12.1% +3.8pp Operating cash flow EUR 1,185m -56m Net debt EUR 2,1m -31m Net debt / EBITDA 1.55x -.28x Dividend proposal EUR ( * excluding special items.

13 EBITDA in Q4 215 vs. Q4 214 EURm Profit improvement actions and favourable currencies outweighed the decrease in sales prices % Prices Deliveries Fixed costs Variable costs Favourable pulp market, currencies and costs benefited Biorefining. Increased pulp costs and currency hedges EURm impacted the paper businesses 45 Currency, Raflatac Biorefining net impact 14.1% 334 Energy % Paper Asia Paper ENA Plywood Other operations and eliminations % EBITDA Q4/14 EBITDA Q4/15 EBITDA Q4/14 EBITDA Q4/15 13

14 Operating profit * ) by business area EURm 15 Biorefining % of sales 25 EURm 8 Energy % of sales 6 EURm 5 Raflatac % of sales Q1 13 Q3 13 Q1 14 Q3 14 Q1 15 Q3 15 Q1 13 Q3 13 Q1 14 Q3 14 Q1 15 Q3 15 Q1 13 Q3 13 Q1 14 Q3 14 Q1 15 Q3 15 EURm 5 Paper Asia EURm Paper ENA % of sales EURm Plywood % of sales % of sales 12, , , Q1 13 Q3 13 Q Q3 14 Q1 15 Q3 15 * ) excluding special items -5 Q1 13 Q3 13 Q1 14 Q3 14 Q1 15 Q Q1 13 Q3 13 Q1 14 Q3 14 Q1 15 Q3 15

15 Outlook for 216 s profitability improved in 215 and the improvement is expected to continue in 216. The business performance in 216 is underpinned by the company s growth projects and continuous cost efficiency measures. s growth projects are expected to contribute positively to the company s earnings in 216, compared with 215. continues its measures to reduce variable and fixed costs also in 216. Currencies are expected to contribute positively as hedges roll over, assuming relevant currencies stay at about the same level as at the end of

16 Q18 Q38 Q19 Q39 Q11 Q31 Q111 Q311 Q112 Q312 Q113 Q313 Q114 Q314 Q115 Q315 Strong cash flow EUR million Cash flow, trailing 12 months Cash flow after investing activities Operating cash flow Q4 215 operating cash flow was EUR 39m (462m) In Q4 215, working capital decreased by EUR 6m (EUR 144m) In 215, operating cash flow was EUR 1,185m (1,241m), EUR 2.22 per share (2.33) 16

17 Dividend proposal EUR per share,9,8,7,6.55 Dividend Dividend policy aims to pay an attractive dividend, 3-4% of operating cash flow per share,5, Board s dividend proposal for 215,3 EUR.75 (.7) per share,2,1 34% of 215 operating cash flow per share,

18 Low investment needs in existing assets allow growth projects with modest total capex EUR million 1 2 Capital expenditure Estimate 1 8 Myllykoski acquisition Depreciation 6 Uruguay acquisition 4 Strategic investments Operational investments e

19 Balance sheet continued to strengthen Net debt, EUR million 5 Net debt / EBITDA (trailing 12 months) 4,5 Net debt, EUR million Gearing % Net debt / EBITDA 4, 3, Gearing , , , Net debt 1.6 1,5 2 Net debt , Liquidity was EUR 1.7bn at the end of Q4 215 Repayments total EUR.24bn in 216

20 Biorefining Biorefining Biorefining consists of pulp, biofuels, sawn timber and integrated energy production Biorefining 215 (EURm) 214 (EURm) Sales 2,272 1,937 Operating profit * ) % of sales ROCE * ), % * ) excluding special items 2

21 Synergies in wood sourcing and raw materials Synergistic operations in production integration Biorefining Biorefining value created Capitals Capital intensive process industry Engaged high performing people Sustainable forest biomass from certified sources and with full traceability Sustainable forest management Responsible sourcing Intellectual property rights Community engagement Forestry and wood sourcing Professional sourcing organisation s certified forests in Finland certified eucalyptus plantations in Uruguay Forestry services Production Pulp Large modern mills Efficient production Combined heat and power production Biofuels World s first biorefinery producing woodbased renewable diesel Proprietary technology IPR Timber Efficient sawmills Sales Pulp Global sales Strategic sales co-operation World-class technical service Biofuels Regional biofuels sales Timber Skilled global sales network Customers Pulp Tissue, Packaging board, Speciality paper and Graphic paper producers Biofuels Fuel distributors Timber Construction, furniture, joinery industries End uses Outcomes Safe and sustainable products Renewable energy Carbon storing products Low emissions Biodiversity Employment Work safety Community wellbeing ROCE 21

22 Biorefining plans to expand production in its competitive pulp mills by 1% Fray Bentos capacity 1,3, t of eucalyptus Pietarsaari capacity 8, t soft- and hardwood pulp Kymi capacity 7, t soft- and hardwood pulp Kaukas capacity 74, t soft- and hardwood pulp 22

23 Biorefining 85% of pulp demand is in growing end-use segments Bleached market pulp demand by end-use and region WE NA China ROW Total P&W 11% 3% 11% 8% 33% Tissue 9% 7% 8% 11% 35% Packaging 1% % 4% 1% 8% Speciality 6% 1% 4% 4% 15% Fluff 2% 2% 2% 4% 1% 29% 14% 29% 28% 1% = growing market segment (86%) = declining market segment (14%) *Source: Hawkins Wright, August

24 Biorefining Chemical pulp market Q4 NBSK pulp price decreased 3% from Q3 Q4 BHKP pulp price unchanged from Q3 USD/tonne 1 1 Days of supply 65 Pulp inventories 1 9 NBSK Hardwood inventories BHKP Softwood inventories Source: FOEX Indexes Ltd. Source: PPPC World-2 statistics 24

25 Biorefining Renewable drop-in diesel suitable for all diesel engines Engine tests done in independent research centres - Finnish VTT - German research centre FEV Fleet tests done with VW and VTT Renewable drop-in diesel suitable for all diesel engines Functions like any regular diesel RENEWABLE RAW MATERIAL 1 % CO 2 EMISSIONS (VS. FOSSIL FUEL) 8 % HYDROCARBON FUEL, COMPATIBLE WITH DIESEL STANDARD EN59 1 % 25

26 Biorefining Growing share of advanced biodiesel Demand for advanced biofuels is growing due to stricter environmental standards and sustainability requirements The EU is aiming to increase the use of renewable fuels in transport: - EU 22: 1% target in place (Finland 2%) ILUC-directive by the EU to govern sustainable raw materials approved for double counted biofuels Cap of 6-7% for traditional biodiesels favours use of advanced biofuels, e.g. BioVerno 26

27 Biorefining Biofuels drivers for profitable business Price BioVerno RME compared with reference (RME) Higher energy content Lower GHG emissions, no indirect land use change No blending limit from quality Lower tailpipe emissions Fits to existing infrastructure and distribution network Double counting and future 2G quota Low feedstock cost CTO rapeseed oil compared with reference (rapeseed oil) Price Yield Flexible regarding feedstock Competitive other costs technology Integration benefits in energy, raw materials and infrastructure Stability compared with RME 27

28 Energy Energy A versatile set-up of cost competitive low-emission power generation plants in Finland Trading in physical and derivative markets Energy 215 (EURm) * ) excluding special items 214 (EURm) Sales Operating profit * ) % of sales 43.6% 43.5% ROCE * ), % 6.7% 7.% 28

29 Energy Energy value created Capitals Capital intensive utility business Low-emission energy sources, including water rights Fuels Engaged high performing people Organisational experience Energy trading platform Versatile generation (from own hydropower plants and shareholdings in energy companies) Hydro power Flexible Cost competitive Low emissions Renewable Condensing power Reliable peak load Nuclear Efficient base load Cost competitive Low emissions Physical power market Physical value creation Mainly Nord Pool Spot market for day-ahead and intraday trading Members (buyers and sellers) agree on contracts for the delivery of power Transmission Distribution Household consumption Small and medium sized enterprises Industrial electricity consumption Outcomes Lowemission electricity Work safety Energy supply security Flexible power supply Risk mitigation ROCE Regulation Financial Markets Derivative power contracts traded on Nasdaq Commodities Value protection and creation 29

30 DEI Drax RWE Scottish & Southern EDP E.ON Vattenfall Enel Edipower Union Fenosa CEZ EnBW GDF Suez Europe Dong: Elsam+Energy E2 Iberdrola+Scottish Power Fortum EDF Verbund Statskraft Energy Cost competitive low-emission electricity generation Electricity generation capacity in 214 Type Nominal capacity MW Hydropower 78 Nuclear power 581 Condensing power 32 Wind power 1 Total in Energy 1,61 kgco 2 /MWh Specific CO 2 emissions 3 Source: PWC 213,

31 Energy Price development in the Nordic and Helsinki power markets EUR/MWh 7 Finnish and Nordic electricity prices Coal SRMC Front Year System Front Year Helsinki Front Year Source: Reuters 31

32 Raflatac Raflatac Self-adhesive label materials for product and information labelling in industries such as food, beverage, retail and logistics Raflatac 215 (EURm) 214 (EURm) Sales 1,49 1,248 Operating profit * ) 12 8 % of sales 7.2% 6.4% ROCE % 17.6% 15.1% * ) excluding special items 32

33 Raflatac Raflatac value created Capitals Capital light converting business Engaged high performing people Responsible sourcing Face paper Release paper Films Adhesives Silicones Self-adhesive labelstock factories Modern Efficient Strategically located Distribution and slitting network Optimised distribution and slitting network Efficient and responsive Sales and services Loyal relationships Global scale Technical know-how Customers Label printers Label using industries New concepts and products, sustainability throught the lifecycle Home & Personal care Food & Beverage Retail A4 and cut-size Pharmaceutical Transport & Logistics Durables Tyres End uses Outcomes Safe and certified products Brand appeal Work safety Employment Recyclable products RafCyclewaste recycling concept ROCE 33

34 Raflatac Growth in self-adhesive labelling market continues ~ EUR 6bn market Global self-adhesive label market size and long-term growth outlook Europe North America 5,1 bm2 +2-3% 5,7 bm2 +2-3% Middle East & Africa Emerging Asia 2, bm2 +8-1% Japan & Korea 1,6 bm2 +1% South America,6 bm2 +1% Source: FINAT, TLMI, Raflatac, Bain, AWA, Freedonia 1,1 bm2 +4-6% Oceania,3 +1% 34 Global growth in 214 estimated ~4%

35 Raflatac Next steps Capture organic market growth Leverage existing asset base to improve productivity Continue low-capex expansion in emerging markets and film and special product lines Speed-up the above by synergistic acquisitions 35

36 Paper Asia Paper Asia Paper Asia serves growing fine and office papers market in Asia, and labelling materials markets globally Recognized industry leader in sustainability Extensive own sales network Paper Asia 215 (EURm) 214 (EURm) Sales 1,168 1,124 Operating profit * ) % of sales 4.7% 9.6% ROCE, % 5.4% 12.5% 36 * ) excluding special items

37 Paper Asia Paper Asia value created Capitals Production Sales Customers End uses Outcomes Capital intensive process industry Engaged high performing people Community engagement Responsible sourcing Sustainable chemical pulp with full traceability Sustainable raw materials and energy Labelling materials Extensive experience in high quality release liners and face papers Cost competitive production Fine papers Leading office paper brands in China Selectively in uncoated and coated segments Cost competitive production BAT (Best Available Techniques) Global market leader in labelling materials Own sales network of fine papers in Asia Pacific Reliable supplier Exceptional customer experience Recognised leader in sustainability Labelstock manufacturers Siliconisers Packaging converters Merchants Printers & Publishers Merchant-owned labels Safe and certified products Work safety Employment Career opportunity Ethical and compliance in global norms Recyclable products Low emissions ROCE Customer-driven R&D 37

38 Paper Asia Global market leader in labelling materials Globally +4,2% p.a. North America +2,5% p.a. Europe +1,7% p.a. Jämsänkoski Tervasaari Changshu Latin America +6,6% p.a. Others +7,6% p.a. Asia Pacific +8.% p.a Labelling: glassine/sck ( * demand outlook by *Glassine/SCK are papers used in labelling materials as release liners Source: AWA

39 Paper Asia Market leader in high quality office papers in China with extensive, own sales network China +2.6% p.a. APAC +2.% p.a. Changshu Fine and office paper demand in Asia by Source: RISI, Poyry,

40 Paper ENA Paper Europe and North America Paper products for magazine and newspaper publishers, advertising end uses as well as home and office Paper ENA 215 (EURm) 214 (EURm) Sales 5,56 5,284 Operating profit * ) % of sales ROCE, % Cash flow/ce, % 4,6 12,9 4 * ) excluding special items

41 Paper ENA Paper ENA value created Capitals Customer-based business units Customer End uses Outcomes Capital intensive process industry Engaged high performing people Community involvement and local presence Responsible sourcing Virgin fibre from certified sources Recycled fibre Chemical pulp with full traceability Sustainable raw materials and energy Customer focus and offerings Wide product range Reliable supplier Common operational platform for production, supply chain and sales Magazine Publishing & Advertising Newspaper Publishing Merchants, Home & Office Production Efficient and cost competitive production Environmental and technical expertise Focused R&D Sales Market-based, global sales World class technical service Excellent customer service Publishers Printers Retailers Cataloguers Advertisers Brand owners Merchants Converters Safe and certified products Work safety Employment Recyclable products Renewable energy Low emissions Vitality of local communities Responsible restructuring Cash flow / Capital employed 41

42 Paper ENA European graphic paper market is oversupplied, industry structure is fragmented Million tonnes 6 Demand and Capacity 81 small producers Industry structure 21 % 5 4 SCA 2 % 3 2 Palm 3 % Lecta 3 % IP 3 % Stora Enso 15 % p 215e Demand Net Exports Capacity Holmen 3 % Portucel 4 % Mondi 4 % Burgo 5 % Norske Skog 5 % Sappi 8 % Sources: Euro-Graph, PPPC 42 Sources: JP Webbmill

43 Paper ENA Growth in the European economy remains low Euro zone composite leading indicator* (Y/Y %) 6, 3, Euro zone composite leading indicator Paper demand growth (% trailing 3 month) , -3, Graphic paper demand growth , Sources: Cepiprint, Cepifine, OECD

44 Paper ENA Overcapacity in European graphic paper is visible in margins EUR/t Price Cash cost of a marginal producer Sources: PPI, RISI, Pöyry 44

45 Paper ENA Graphic papers demand in Europe decreased by 2% in Q4 and 4% in 215 from previous year ' tonnes 4 Magazine papers demand in Europe -5% Newsprint demand in Europe -6% Fine papers demand in Europe -2% % 2 5-4% -4% Q1 1 Q4 1 Q3 11 Q2 12 Q1 13 Q4 13 Q3 14 Q Q1 1 Q4 1 Q3 11 Q1 13 Q4 13 Q3 14 Q Q1 1 Q3 1 Q1 11 Q3 11 Q1 12 3Q 12 Q1 13 Q3 13 Q1 14 Q3 14 Q1 15 Q Sources: Cepiprint/fine, PPPC

46 Paper ENA Graphic paper prices EUR/t 1 Europe USD/t 13 North America USD/t 13 China Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 4 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 4 News SC LWC News SC LWC WFC r (1% chemical pulp) WFC Sources: PPI, RISI 46 WFU WFC WFU Reels (mixed chemical/mechanical pulp) Uncoated Woodfree Reels (1% chemical pulp)

47 Plywood Plywood Plywood and veneer products for building and construction, and industrial applications such as transportation equipment Plywood 215 (EURm) 214 (EURm) Sales Operating profit * ) % of sales ROCE, % 2.9% 16.4% * ) excluding special items 47

48 Plywood Plywood value created Capitals Moderately labour and capital intensive industry Engaged high performing people Community engagement Responsible sourcing Sustainably sourced wood from certified sources with full traceability Production Plywood mills (spruce) Plywood mills (birch) Veneer mill Sales Leading supplier in demanding end uses High quality Supply chain services Professional technical services Reliable supplier Strong brand Customers industries Construction LNG shipbuilding Vehicle flooring Parquet Other industrial manufacturing End uses Outcomes Safe and certified products Carbon storing products Employment Work safety Vitality of local communities Low emissions ROCE Sustainable energy Product and process development 48

49 Plywood Focus on the most attractive businesses Repair & renovation expected to stay solid or increase Residential building and civil engineering showing signs of recovery High share of road transportation to grow further in Europe Fleet replacement backlog Half of world s gas reserves can reach the market only as LNG Trade is growing, routes are getting longer Construction / Panel Trading Vehicle Flooring LNG Shipbuilding #1-2 in Europe #1 in Europe #1 globally 49

50 Forward-looking statement 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 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. 5

51 Contact information Investors Mika Mikkola Johan Lindh Annele Inberg, specialist

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