UBS Global Paper & Forest Products Conference September 13, 2012

Transcription

1 UBS Global Paper & Forest Products Conference September 13, 2012

2 Forward-Looking Statements Certain statements in these slides and made during this presentation may be considered forwardlooking statements. These statements reflect management's current views and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in these statements. Factors which could cause actual results to differ include but are not limited to: (i) the level of our indebtedness and increases in interest rates; (ii) industry conditions, including but not limited to changes in the cost or availability of raw materials, energy and transportation costs, competition we face, cyclicality and changes in consumer preferences, demand and pricing for our products; (iii) global economic conditions and political changes, including but not limited to the impairment of financial institutions, changes in currency exchange rates, credit ratings issued by recognized credit rating organizations, the amount of our future pension funding obligation, changes in tax laws and pension and health care costs; (iv) unanticipated expenditures related to the cost of compliance with existing and new environmental and other governmental regulations and to actual or potential litigation; (v) whether we experience a material disruption at one of our manufacturing facilities and risks inherent in conducting business through a joint venture; (vi) the failure to realize synergies and cost savings from the Temple-Inland Inc. ( Temple-Inland ) transaction or delay in realization thereof; and (vii) our ability to achieve the benefits we expect from all other strategic acquisitions, divestitures and restructurings. These and other factors that could cause or contribute to actual results differing materially from such forward looking statements are discussed in greater detail in our Securities and Exchange Commission filings. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. 2

3 Statements Relating to Non-GAAP Financial Measures During the course of this presentation, certain non-u.s. GAAP financial information will be presented. A reconciliation of those numbers to U.S. GAAP financial measures is available on the company s website at internationalpaper.com under Investors 3

4 Ilim JV Information All financial information and statistical measures regarding our 50/50 Ilim joint venture in Russia ( Ilim ), other than historical International Paper Equity Earnings and dividends received by International Paper, have been prepared by the management of Ilim. International Paper has not verified or audited any of this information. Ilim management has indicated that the financial information was prepared in accordance with International Financial Reporting Standards and extracted from Ilim s financial statements. Any projected financial information and statistical measures reflect the current views of Ilim management and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such projections. See Forward-Looking Statements. 4

5 International Paper Poised for Further Success Significant runway with current portfolio Balanced growth of revenue and EBITDA North America consolidation and optimization Emerging Market growth Greater than cost of capital returns Increasing cash generation enables both reinvestment and return of capital to shareholders 5

6 International Paper Transformation The Journey International Transformation Paper Transformation Plan Timeline/Plan Divestitures & Strategic Reinvestment Post Transformation Strategic Moves Reaching our Post Transformation Potential Global Recession Cost of Capital Returns N.A. Weyco Pkg. Acquisition N.A. TIN Acquisition $11B Asset Sales Russia ILIM JV Coated Papers Wood Products Forestland Kraft Paper Chemicals Beverage Pkg. China SUN JV Brazil VCP Land / Mill Swap Luis Antonio Tres Lagoas China SCA Pkg. India APPM Acquisition 6

7 Repositioned & Well-Positioned Supplier Position North America Corrugated Packaging 3 1 Uncoated Papers 1 2 Coated Paperboard 1 1 Distribution 1 1 Emerging Markets Brazil Uncoated Papers 2 1 Russia Paper, Pulp & Packaging 3 1 India Uncoated Papers 4 China Coated Paperboard 2 7

8 N.A. Packaging & Paper Structural Improvements in Results $/short ton $700 $650 $600 $550 $500 $450 $400 $ Corrugated Packaging Thousand Containerboard Shipments / Capacity Tons Capacity Shipments Operating Rate 3,200 3,100 3,000 2,900 2,800 2,700 2,600 2,500 2,400 2,300 2,200 2, Source: AF&PA Containerboard Pricing Linerboard Medium IP Industrial Packaging EBITDA Margin 8% 20% ROI (before special items) 2% 10% 2012 Operating Rate 105% (RISI) % 95% 90% 85% 80% 75% 70% Thousand Tons 1,300 1,200 1,100 1, $/short ton $1,200 $1,100 $1,000 $900 $800 $700 Uncoated Freesheet Shipments / Capacity N.A. Cap NA Ship NA OpRt Source: PPPC, RISI Uncoated Freesheet Pricing Trends RISI 20# Cutsize RISI 50# Offset IP Printing Papers EBITDA Margin 10% 22% ROI (before special items) 0.6% 13% (RISI) Operating Rate 105% 95% 85% 75% 65% 2011 Excludes Recycling businesses; includes Saturating Kraft & Bag business 8

9 $B Step-Change Improvement in EBITDA (0.6) (0.8) 2005 EBITDA Actual Divested Businesses Forest Products N.A. Industrial Packaging Emerging Markets N.A. Printing Papers N.A. Coated Paperboard Corporate & Other 2011 EBITDA Actual Earnings before special items 9

10 $ Billions Step-Change Improvement in Free Cash Flow $1.8 Billion (average) $2.5 Global Economic Recession $2.0 $1.5 Transformation $0.7 Billion (average) $1.0 $0.5 $ Free cash flow, based on data in the 10-K for each year at the time of filing. Excludes net cash pension contributions impacting 2006, 2010 & 2011, cash flows under European accounts receivable securitization beginning in 2009 and ending in 2011, and cash received from Black Liquor Tax Credits in 2009 and

11 Improving Return on Investment 9.0% 8.0% 7.0% Global Economic Recession 8% 6.0% 5.0% 4.0% 3.0% 4% 5% 6% 5% 4% 6% 2.0% 1.0% 0.0% ROI WACC 11

12 International Paper Today Global Packaging and Paper with Revenues of ~$30B Positioned in attractive markets with low-cost assets that can generate strong free cash flow and returns that exceed our cost-of-capital North America - 75% Recognized Leader in Core Segments: Corrugated Pkg. Uncoated Papers Coated Paperboard Distribution $2.9B Total Sales EMEA & Russia $2.2B 1 ILIM JV Total Sales $23.5B Total Sales North America India China $1.6B Total Sales $1.2B Total Sales Brazil $0.2B Total Sales Emerging Markets - 25% Build Leading Positions in Fiber-based Packaging & Paper Segments in High-Growth Markets 2011 IP + TIN total actual sales excluding Building Products (India total sales are November and December 2011 actual sales annualized) 1 ILIM JV total actual sales are not consolidated (IP owns 50% of JV) 12

13 International Paper Segment & Regional Earnings Profile EBITDA by Segment EBITDA by Region Distribution 2% Asia 1% Consumer Packaging 13% Industrial Packaging 50% Brazil 7% Europe 8% North America 75% Russia 9% Printing Papers 35% Based on 2011 earnings from continuing operations before special items. Combined EBITDA reflects TIN actual results less ($100) million for mill divestitures plus $300 million in synergies (2012 projected exit rate). Russia includes the Svetogorsk mill and IP s share of Ilim JV equity earnings. IP s share of Ilim JV equity earnings reflects approximate proportional adjustments for interest & tax. 13

14 $MM Reaching Our Post Transformation EBITDA Potential Grow w/market, Mix Optimization & Asset Repurposing Cost Reduction Initiatives & Capital to Offset Inflation Temple-Inland Base Business + Synergies Reinvestment for Growth in Core Segments Cost Reduction Initiatives & Capital to Offset Inflation APPM - India Base Business & Optimization (130 ) 75 5, (505 ) 700 Emerging Markets 3, North America $450MM EBITDA Improvement ~7% Base Revenue Growth 200 bps Margin Improvement $950MM EBITDA Improvement ~1% Base Revenue Growth Industry Leading Margins 2011 EBITDA Actual Non-Price Commercial Initiatives Cost Reduction Initiatives Inflation & Temple-Inland Papers Decline Non-Price Commercial Initiatives Cost Reduction Initiatives Inflation APPM - India Mid-cycle Potential Earnings before special items 14

15 ILIM JV Progress IP purchased 50% of ILIM Holding in 2007 ($640MM) IP received $234 million in cash dividends to date IP EPS accretive cumulative $213MM in IP equity earnings to date Record ILIM Holding earnings in $530 million EBITDA High return, strategic capital build out underway Mid-Cycle EBITDA Potential of $720 million (ILIM Holding) 15

16 Reaching our Post Transformation Potential Mid-Cycle Potential Revenue ($Billion) EBITDA 1 ($Billion) EBITDA Margin 12% 14% 15% Free Cash Flow 2 ($Billion) ROI 4% 8% 9% Earnings before Special Items EBITDA includes discontinued operations. 2 Free cash flow before dividends; 2011 excludes a $209 MM increase in working capital related to the cessation of the European A/R securitization program, $123 MM tax receivable collected related to pension contributions, $300 MM cash paid for voluntary pension contribution and $175 MM cash received from unwinding a timber monetization. Mid-Cycle Potential excludes similar items. 16

17 International Paper s Balanced Use of Cash Systematically Return Cash to Shareholders Maintain Sustainable Dividend at 30-40% of FCF Share Repurchases Capital Spending Effective Capital Spending Maintenance & Regulatory Capital Expenditures High Return, Cost Reduction Projects Selective Reinvestment Improve Cost Position in North America Capitalize on Global Demand Growth Above Cost of Capital Returns Free Cash Flow Maintain Strong Balance Sheet & Credit Rating Appropriate Liquidity & Debt Coverage Prudent Contributions to Pension Plan 17

18 Systematically Return Cash to Shareholders Sustainable Dividend $6 $5 $5.1 $4 $3.7 $B $3 $2 $1.7 $2.2 $1 $0 EBITDA FCF EBITDA FCF 2011 Mid-Cycle Potential %FCF 27% 30%-40% Dividend per Share $1.05 ~$1.45-$1.95 Paid Dividends $MM $460 ~$650-$850 Earnings before special items 18

19 $ Billion Maintain Strong Balance Sheet & Credit Rating Debt Coverage Target: Adjusted Debt < 3X Adjusted EBITDA 2012 Highway Law Pension Implications 3.8x $2.7 1 Pension Gap $11.6 Balance Sheet Debt 3.7x $2.7 1 Pension Gap $11.3 Balance Sheet Debt Significant reduction in near term required pension contributions Current estimate is <$100MM in 2013 (vs. ~$500MM) No change in accounting measure for pension liability No change in adjusted debt/credit metrics $1.2 Op. Lease Adj. $1.2 Op. Lease Adj. 1Q12 2Q12 Adjusted Debt reflects gross balance sheet debt plus pension gap and operating lease adjustment (Moody s Methodology) EBITDA based on 2012 Adjusted First Call EBITDA of $4.1B (Moody s Methodology) 1 IP pension gap as of 12/31/2011; Temple-Inland pension gap as of 2/13/

20 Effective Capital Spending $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0 Maintenance Regulatory Strategic Cost Reduction TIN ~1.5B Annually / ~95% Depreciation (85% excluding Boiler MACT) 150% 125% 100% 75% 50% 25% 20

21 EBITDA Selective Reinvestment Strategic Earnings Drivers Now 2012 Near Term Future ILIM JV Phase 2 Franklin Fluff Pulp Sun JV New PM Brazil TL2 India Build-Out Temple-Inland Integration xpedx Transformation ILIM JV Build-Out India Optimization Temple Inland Optimization 21

22 Temple-Inland Integration More Synergies, Faster Synergy Category Description Current Outlook 2Q12 Run Rate ($MM) Annualized S G & A Eliminate Duplication $115 ~80% Achieved Containerboard Mills / Supply Chain Grade / Machine Mix Optimization Efficiency Improvements Logistics Optimization $90 ~20% Achieved Box Plants Efficiency Improvements (Waste, Freight) System Streamlining Customer and Segment Optimization $150 ~70% Achieved Sourcing Purchasing Consolidation $45 ~55% Achieved Synergy Target $400 ~$240 22

23 Strategic Project Updates Ahead of Plan Franklin, VA Pulp Mill Conversion xpedx Transformation Mogi Guacu Boiler IP-Sun JV CPB Capital Expansion Ilim JV Build-Out NBSK (China) & UFS (Russia) India Optimization Repurpose existing Asset Status: Up and running Achieve Cost of Capital Returns in Distribution Status: Early results favorable, offsetting print decline Generate Self-reliant Steam using Renewable Energy Status: Ahead of schedule, on budget Build Capacity to Grow with Market (China) Status: PM installation underway; start-up on schedule Build Capacity to Grow with Market (Russia / China) Status: Converting equipment running in Koryazhma; Woodyard complete and recovery boiler up in 4Q12 Leverage IP s Expertise to Maximize Asset Utilization Status: Significant planned outage completed in Q2 2H H

24 N.A. Printing Papers & Pulp Franklin Fluff Pulp Mill Start-up Start-up June 29 TH Early productivity and product quality better than plan Targeting accelerated fluff pulp ramp Optimizing Go-to-Market plans relative to patch testing and customer trials 24

25 Strategic Project Updates A Closer Look Mogi Guacu Biomass Boiler Mogi Guacu Boiler Installation Sun JV PM Press Section & Dryer Section Bratsk Pulp Mill Recovery Boiler India Rajahmundry Mill Site 25

26 International Paper Poised for Further Success What We ve Done Exited non-strategic businesses Completed strategic acquisitions Reduced structural capacity and fixed costs Achieved industry-leading margins Significantly improved balance sheet and FCF What We re Doing Managing our supply to meet customer demand Maintaining strong balance sheet and increasing FCF Capitalizing on global demand growth Investing in high return projects and strategic acquisitions Returning cash to shareholders What We ll Do Continue to grow strong, sustainable FCF Expand margins and earnings in all businesses Achieve cycle-average ROI above cost-of-capital Maintain strong balance sheet Continue balanced cash allocation Increase dividend over time 26