International Paper Company 2016 Annual Report
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PURSUING OUR VISION TO BE AMONG THE MOST SUCCESSFUL, SUSTAINABLE AND RESPONSIBLE COMPANIES IN THE WORLD To our shareowners, As one of the world’s leading producers of renewable fiber- based packaging, pulp and paper products, we know it’s our responsibility to create long-term value for all stakeholders in the most responsible and sustainable manner. I’m confident in the future of International Paper. By investing in attractive, fiber-based markets, controlling costs, managing capital spending and focusing on deliberate improvement efforts to increase productivity and efficiency, we have generated strong sustainable free cash flow despite challenging economic conditions. In 2016, we developed The IP Way Forward to drive the next wave of improvements and continue to meet our Mark Sutton Chairman commitments to our shareowners, customers, employees and CEO and communities. The IP Way Forward consists of five Strategic Drivers critical to our success: sustaining forests, investing in people, improving our planet, creating innovative products and delivering inspired performance. Sustaining FORESTS g in P estin EOP Inv LE Our entire business depends on the sustainability of forests. E C Im N By providing a dependable market for responsibly grown fiber, p A r o M v we provide an economic incentive for landowners to grow, R i n O g F harvest and regenerate forests for continuous, sustainable use. Sustaining o R u E FORESTS r P P L d A e r i N p E s T n I In n S ova CT tive PRODU The IP Way Forward is our strategic framework for achieving our vision to be among the most successful, sustainable and responsible companies in the world. 2016 Annual Performance Summary 1 ADDITIONAL We will continue to lead the world in responsible forest stewardship to ensure healthy and productive forest ecosystems for generations $10 MILLION to come. Our investments in forest restoration and sustainable TO NFWF forest management help increase forest carbon stocks and mitigate FOR FOREST ECOSYSTEM climate change. PROTECTION Since 2013, we have invested more than $7.5 million in the Forestland Stewards Initiative, a partnership with the National Fish and Wildlife Foundation (NFWF) aimed at protecting and enhancing ecologically significant forestlands in the United States. Our investment generated more than $24.5 million in matching funds for a total conservation impact of $32 million. In 2016, we renewed our commitment to this partnership and pledged to increase our contribution to $10 million over the next five years. Investing in PEOPLE ALMOST 50% Our most important measure of success is ensuring all employees, REDUCTION IN contractors and visitors arrive home safely every day. In 2016, SERIOUS SAFETY we expanded our focus on prevention with Safety Leading Indicators INCIDENTS to identify hazards and unsafe actions before accidents occur. SINCE 2012 Engaged employees drive sustainable results, and good leaders engage, align and inspire colleagues. Building our capability means not only improving our assets, but also developing our employees, retaining our top talent and creating a culture of inclusion, where individuals feel respected, are treated fairly and have opportunities to do their best every day. “We protect and We continue to be a force for good in our communities. By mobilizing improve the lives our people, products and resources we can help address critical of our employees.” community needs where our employees live and work. In 2016, we increased our charitable contributions and focused our community engagement strategy on four signature people causes: education, hunger, health and wellness and disaster relief. SERIOUS SAFETY INCIDENTS 68 2012 50 2013 38 2014 36 2015 35 2016 *This data includes the 2016 acquisitions. 2 International Paper $14 MILLION INVESTED TO ADDRESS CRITICAL COMMUNITY NEEDS AND TO IMPROVE THE PLANET Improving our PLANET 6.4% ENERGY Our sustainability story is embedded in the renewability and recyclability of our products, and in the way we operate. EFFICIENCY IMPROVEMENT More than 70 percent of the energy used in our global mill system SINCE 2010 is generated from renewable, carbon-neutral biomass. We set our Vision 2020 Goals using a 2010 baseline; since then, we’ve reduced our energy use and greenhouse gas and other air emissions, resulting 19% in a reduced environmental footprint and lower energy costs. REDUCTION “We are committed to reducing IN GHG EMISSIONS SINCE 2010 our environmental footprint.” 2016 Annual Performance Summary 3 Innovative PRODUCTS We transform renewable resources into recyclable business, the world’s premier manufacturer of fluff products people depend on every day. Our packaging and specialty pulp. This acquisition gave us best- products protect and promote goods, enable in-class manufacturing assets and capabilities, worldwide commerce and keep consumers safe. a valuable patent portfolio and an expanded Our pulp for diapers, tissue and other personal innovation team that will help us improve and grow hygiene products promote health and wellness. our entire pulp business. We also gained additional Our papers facilitate education and communication, mills in key coastal locations, which allows us to and our food service products provide convenience expand our exports of fluff pulp around the world. and portability for on-the-go consumers. We continue to focus on creating innovative, In December 2016, we acquired Weyerhaeuser’s sustainable and recyclable products that help our pulp business and integrated it with our existing customers achieve their objectives and satisfy business to create our Global Cellulose Fibers changing global consumer demand. MEETING CONSUMER DEMANDS $170 million $160 million strategic capital investments Madrid mill acquisition in our containerboard mills and planned conversion Our acquisition and planned conversion We invested in our containerboard of the Madrid mill represents a strategic mills in Prattville, Ala., and Springfield, opportunity to grow our corrugated Ore., in 2016 to expand capacity and packaging business in EMEA by further improve efficiency. enhancing our value proposition and offering our customers even more choices in terms of innovative, tailored and high-performance packaging solutions. $2.2 billion Weyerhaeuser Pulp acquisition This 2016 acquisition positions International Paper as the premier global supplier of fluff pulp and enhances our ability to generate additional cash flow. In this transaction, International Paper acquired five pulp mills and two converting facilities that produce fluff pulp, softwood pulp and specialty pulp products for consumer applications including diapers, other hygiene products, tissue and textiles. 4 International Paper RETURN ON INVESTED CAPITAL 2012 8.3% 2013 9.3% 7TH CONSECUTIVE 9.2% YEAR ABOVE 2014 COST-OF- CAPITAL RETURNS 2015 11% 2016 9.9% FIVE-YEAR AVERAGE: 9.6% RETURN ON Inspired PERFORMANCE INVESTED CAPITAL We deliver long-term value for our stakeholders by establishing advantaged positions in attractive, fiber-based market segments with FIVE-YEAR AVERAGE: safe, efficient manufacturing operations near sustainable fiber sources. $ 1.8B FREE Challenging market conditions and increasing costs for fiber and energy caused us to fall short of our 2016 earnings goal. However, CASH FLOW we remain focused on generating strong free cash flow, creating value with returns greater than our cost of capital, returning cash 5TH CONSECUTIVE YEAR OF to shareowners, maintaining a strong balance sheet and making investments for future growth. DIVIDEND INCREASE FREE CASH FLOW ANNUALIZED DIVIDEND $2.1B $1.9B $1.85 $1.8B $1.8B $1.76 $1.6B $1.60 $1.40 $1.20 2012 2013 2014 2015 2016 2012 2013 2014 2015 2016 2016 Annual Performance Summary 5 LEADERSHIP We value strong leadership and continue to work actively to maintain a strong bench of leaders. Farewell to Our Colleagues Congratulations to Our Newly Board Member Transitions Elected Senior Vice Presidents Bill Hoel, former Senior Vice President, In December 2016, Joan Spero retired from Container the Americas, retired effective John Sims was elected Senior Vice the Board of Directors of International Paper President and President, Europe, the Middle March 31, 2017. Bill joined Masonite Company, pursuant to the board’s mandatory East, Africa and IP Russia, effective July 1, Corporation, an International Paper retirement policy. Joan joined our board 2016. John joined International Paper in 1994 subsidiary, in 1983. For 34 years he led in 2011. and has served in marketing, supply chain, several businesses including Decorative strategic planning, finance and general Products and Wood Products. In 2004, Bill Joan served in the U.S. Department of State management roles. John leads the paper as Undersecretary for Economic, Business was elected Senior Vice President, Corporate and packaging businesses in this region. Sales and Marketing. For more than a decade, and Agricultural Affairs and as Ambassador to the United Nations for Economic and Social Bill led our corrugated packaging businesses Greg Wanta was elected Senior Vice Affairs. She held leadership positions in in North America and Latin America; President, North American Container, corporate strategy and corporate affairs over he directed the integrations of Box USA, effective December 1, 2016. Greg joined a span of 12 years at American Express, and Weyerhaeuser Packaging and Temple-Inland, International Paper in 1991 and has served from 1997 to 2008, she served as president helping to develop one of the world’s premier in several