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Capital Markets Day 2014

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Capital Markets Day 2014 UPM PAPER ENA DRIVING FOR CASH Executive Vice President Bernd Eikens UPM Paper ENA UPM Paper Europe and North America Paper products for magazine and newspaper publishers, advertising end uses as well as home and office Large low-cost asset base and global sales network UPM Paper ENA 2013 (EURm) Sales 5,560 EBITDA 232 EBITDA, % 4% ROCE, % 0% Cash flow/CE 5% 2 | © UPM UPM Paper ENA Large low-cost operating platform Mills SC centers Augsburg North America Europe Personnel 11,000 Capacity 10Mt 18 mills / 37 PMs Location: Augsburg, Germany 3 | © UPM UPM Paper ENA The way forward • Customer segment based structure • Leaner organization and fast decisions • Operational focus, flexibility in operations • Variable and fixed cost savings continue • Limited investments • Capacity restructuring 850,000 tonnes • Fixed cost savings EUR 100m • Variable cost savings • Integration of Myllykoski realized annual cost synergies of EUR 200m • Capacity restructuring of 1,020,000 tonnes • Divestment of packaging paper operations 4 | © UPM UPM Paper ENA Customer segment based structure with differentiated strategies Common initiatives • Variable and fixed cost saving programs • New business developments Magazine Publishing & Newspaper Merchants, Advertising Publishing Home & Office • UPM capacity share in • UPM capacity share in • UPM capacity share in Europe: 25 – 45% Europe: ~20% Europe: ~10% • Assume industry • Grow in targeted • Customer/market leadership segments optimization to be • Differentiated go-to- continued market strategy within • Reduce value chain the segment complexity 5 | © UPM UPM Paper ENA European graphic paper market is oversupplied, industry structure is fragmented Industry structure Million tonnes Demand and capacity (45 million tons (end of 2013) 60 89 smaller producers UPM 21 % 50 40 Palm 2 % 30 Lecta 3 % Stora Enso 20 IP 3 % 16 % Holmen 10 3 % Sappi 8 % Portucel 0 4 % Mondi Norske 2007 2008 2009 2010 2011 2012 2013p 4 % Burgo Skog 5 % Demand Net Exports Capacity 5 % Sources: Euro-Graph, PPPC Sources: JP Webbmill | © UPM 6 UPM Paper ENA North American magazine and advertising paper market somewhat better Industry structure Million (9 million tons, end of 2013) tonnes Demand and capacity 16 12 smaller 14 producers 12 10 PH 4% NewPage 31 % 8 Irving 5% 6 UPM 6% 4 Resolute 2 Verso Forest Pr. 12 % 0 12 % Sappi 2007 2008 2009 2010 2011 2012 2013p 12 % Demand Imports Capacity Sources: Euro-Graph, PPPC Sources: JP Webbmill 7 | © UPM UPM Paper ENA Overcapacity in European graphic paper is visible in margins EUR/t Price hardly covers the cash costs of marginal producers Price Cash cost of a marginal producer 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Sources: PPI, RISI, Pöyry 8 | © UPM UPM Paper ENA Signs of improvement in European economy – impact on paper demand too early to conclude Euro zone composite leading indicator* (Y/Y %) Paper demand growth (% trailing 3 month) 6,0 20 Euro zone composite 15 leading indicator 3,0 10 5 0,0 0 Graphic paper -5 demand growth -3,0 -10 -15 -6,0 -20 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 * Changed GDP base Sources: Euro-Graph, OECD 9 | © UPM UPM Paper ENA Optimisation opportunities for UPM Paper ENA Optimisation Frugal capital Maximise margins WOC management Sales steering Low investment needs Sales Variable cost savings, margin energy, materials Fast pay-back investments Cash flow Adjust to profitable demand Flexible operations Fixed Sufficient volume costs Volume Market share Fixed cost savings End-use mix Capacity closures 10 | © UPM UPM Paper ENA Maintaining cash flow even in adverse circumstances • EBITDA decreased in H1 2013 due to lower prices and volumes • In H2 2013, internal measures offset the market headwinds EURm EURm 500 500 400 Working 400 capital 400 300 300 232 Working Restructuring 205 capital 200 costs 200 Capex Restructuring 123 100 100 costs Capex 0 0 EBITDA Cash EBITDA Cash 2012 flow 2013 flow 11 | © UPM 2012 2013 UPM Paper ENA Key messages • Focus on cash flow • Profit improvement through lower variable and fixed costs, and increased flexibility • Simplified, customer segment based business model with implementation focus • Large, low cost operative platform continues to offer optimisation opportunities, including temporary or permanent capacity closures 12 | © UPM .
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