John V. Faraci Chairman & CEO. JPMorgan Basics and Industrials Conference

Transcription

1 John V. Faraci Chairman & CEO JPMorgan Basics and Industrials Conference June 12, 2007

2 Forward-Looking Statements These slides and statements made during this presentation contain forward-looking statements. These statements reflect management's current views and are subject to risks and uncertainties that could cause actual results to differ materially ly from those expressed or implied in these statements. Factors which could cause actual results to differ relate to: (i) industry conditions, including changes in the cost or availability of raw materials and energy, changes in transportation costs, competition, changes in the Company's product mix and demand and pricing for the Company's products; (ii) market and economic factors, including changes in international conditions, specifically in Brazil, Russia, Poland and China, changes in currency exchange rates, changes in credit ratings issued by nationally recognized r statistical rating organizations, pension and healthcare costs and natural disasters, s, such as hurricanes; (iii) the Company's ability to realize anticipated profit improvement from its transformation plan and the ability to invest proceeds with attractive financial returns and (iv) results of legal proceedings and compliance costs, including unanticipated expenditures related ed to the cost of compliance with environmental and other governmental regulations and the uncertainty of the costs and other effects of pending or potential litigation. We undertake no no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. 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 the Company's Securities and Exchange Commission filings. 2

3 Agenda IP Overview Key Platform Businesses Paper Packaging Strength of Global Platforms 3

4 International Paper Overview Leading global paper & packaging company $22 Billion in revenues 54,000 employees Operations in 20 countries Executing major transformation 4

5 Transformation Plan Transformation plan execution and progress are proceeding as expected Improve Balance Sheet Focus Portfolio Complete Divestments Strengthen Existing Businesses Selective Reinvestments Return Value to Shareholders Must focus on strengthening existing businesses 2007 is critical to our success 5

6 Highlights First Quarter 2007 Operating margins up nearly 300 basis points compared to first quarter 2006 Record first quarter profit for Europe and xpedx Riegelwood mill improvement on track Brazil Asset Swap completed Divestitures completed Strength of global footprint 6

7 International Paper Global Platform

8 Global Strength in Uncoated Papers Leading Positions Across the Globe N. America 30% / #2 4.5 MM tpy W. Europe <10% / # MM tpy E. Europe / Russia 50+% / # MM tpy Brazil 50% / #1 0.8 MM tpy Uncoated paper mill 8

9 Uncoated Papers IP is the largest, best positioned global uncoated paper producer Low-cost positions in U.S., Eastern Europe, Russia and Brazil Strong positions with global customers Innovative, proprietary technology to differentiate products Superior access to markets Leading return on sales in each region 9

10 xpedx Largest N.A. distributor and IP s largest customer 16% of IP s s uncoated paper sales are through xpedx 20% of xpedx s s sales are IP products 2006 sales mix by category Printing Papers 58% Packaging 22% Facility Supplies 15% Graphics 5% 10

11 Global Industrial Packaging Business Europe / N. Africa 26 box plants 3 recycled board mills North America 67 box plants 6 board mills Edirne, Turkey Etienne, France Kenitra, Morocco Asia 10 box plants Corrugated box plant Recycled board mill 11

12 Industrial Packaging 80 + % U.S. mill system in first and second quartile Focus on driving down manufacturing and supply chain costs Track record of growing U.S. box business faster than market Target right segments with markets 12

13 Coated Paperboard Global platform to serve customers Eastern European Capacity 330,000 Tons U.S. Capacity 1.8 Million Tons Svetogorsk 130,000 Tons Asian Capacity 470,000 Tons Kwidzyn 200,000 Tons Texarkana 620,000 Tons Franklin 120,000 Tons Augusta 670,000 Tons Sun Paper JV 470,000 Tons Riegelwood 440,000 Tons Coated paperboard mill capacity 13

14 Strengthening Existing Businesses

15 Transformation Plan Margin Improvement Initiatives Targeting an average of of $400 million per year of of margin improvement over four years Lower costs to manufacture 50% Streamlining the organization 20% Higher sales volumes / mix 30% 15

16 $400MM Improvement Levers Lower costs to manufacture Fewer, bigger, better facilities Productivity Reliability Consumption management Simplification Head count reduction Cost to serve (supply chain) Capital investment Acquisition synergies / Best Practices Streamlining the organization Simplification S&A reductions Head count reduction Outsourcing Acquisition synergies Higher sales volumes / mix Sales revenue growth Customer and segment focus Product innovation 16

17 $400MM Improvement Levers Company-Wide Operational excellence Consumption management Productivity Reliability Standardize, simplify, consolidate & automate Headcount reduction Supply chain Logistics Customer value management Smaller Footprint - Fewer, bigger & better facilities 17

18 Improve Existing Businesses Summary Year 1: 2006 EPS doubled 2005 levels Strong free cash flow - ~$1 billion before dividends Year 2: 2007 $1.00 EPS improvement* Best first quarter since year 2000, operating margins were up 300 basis points Continued strong free cash flow *@ December costs and prices 18

19 Strength of Global Platforms

20 Earnings Growth Outside North America EBITDA is Growing Outside North America 2002 Outside North America 20% 2007* Outside North America 30% North America 80% North America 70% *EBITDA percentages are estimates for

21 Profitability Strong / Attractive Business Positions Outside North America EBITDA Margin E. Europe / Russia Latin America N.A. Paper and Packaging IP / Sun JV Size of bubbles are not to scale Capital Employed ($MM) 21

22 Eastern Europe & Russia Expand in High Return, Growth Markets 2006 Revenue $695 MM EBITDA Margin % Strong Strong in in Russia Russia & Poland Poland Expand Expand capacity capacity in in uncoated uncoated paper paper & coated coated board board Focus Focus on on organic organic growth growth Svetogorsk, Russia Kwidzyn, Poland Paper mills (2) 22

23 Eastern Europe s History of Success Kwidzyn Consistent Profitability Improvement EBIT MM USD (4)

24 Eastern Europe s History of Success Svetogorsk Consistent Profitability Improvement 70 EBIT MM USD (13)

25 Eastern Europe Uncoated Freesheet Market Consistent Attractive Market Growth Ktons Indexed Kwidzyn Svetogorsk CAGR + 4.6% CAGR +16.5%

26 Kwidzyn Global Cost Curve Uncoated Freesheet Delivered to Frankfurt Manufacturing Costs $/Metric Tonne 1,600 1,400 1,200 1, Cash Cost + Delivery to Frankfurt Kwidzyn ,000 4,000 6,000 8,000 10,000 12,000 14,000 Cumulative Capacity (000 Metric Tonnes) Based on Poyry 2006 CostTrac at 4 th Quarter, 2006, Prices and Exchange Rates 26

27 Kwidzyn Global Cost Curve Folding Carton/ Folding Boxboard Delivered to Frankfurt 1200 Cash Cost + Delivery to Frankfurt Manufacturing Costs ($/Metric Ton) Kwidzyn 0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 Cummulative Annual Capacity (000 Metric Tons) Based on Poyry 2006 CostTrac At 4th Quarter, 2006, Prices and Exchange Rates 27

28 Svetogorsk Global Cost Curve Low Cost Supplier 1,800 Uncoated Freesheet Delivered to Moscow Manufacturing Costs $/Metric Tonne 1,600 1,400 1,200 1, Svetogorsk Cash Cost + Delivery to Moscow 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 Cumulative Capacity (000 Metric Tonnes) Based on Poyry 2006 CostTrac at 4th Quarter, 2006, Prices and Exchange Rates 28

29 Latin America Expand in High Return, Growth Markets 2006 Revenues $500 MM EBITDA Margin % Major Major Brazilian Brazilian player player Focus Focus on on uncoated uncoated paper paper Integrate Integrate strategy strategy with with N. N. American/European uncoated uncoated paper paper Luiz Antonio, Brazil Mogi Guacu, Brazil Paper mills (2) Plantations Paper mill - Under Construction 29

30 Asset Exchange with VCP Improve, Strengthen and Grow From To* Businesses 4 1 UCFS (M-Tons) EBITDA ($MM) 430 1, EBITDA/Sales (%) ROI (%) *Represents International Paper s current estimates 30

31 Latin America Growing UFS Market (000 mty) 3,500 Latin America Capacity Latin America Demand Excluding Mexico 3,000 2,500 2,000 1, % per year 3.4% 3.4% per per year year 1, % per year Source: RISI Latin America Pulp & Paper, Bracelpa (Brazilian Pulp and Paper Association) 31

32 Brazil Global Cost Curve 1,800 Uncoated Freesheet Delivered to Buenos Aires Manufacturing Costs $/Metric Tonne 1,600 1,400 1,200 1, Luiz Antonio Mogi Guacu Cash Cost + Delivery to Buenos Aires ,000 4,000 6,000 8,000 10,000 12,000 14,000 Cumulative Capacity (000 Metric Tonnes) Based on Poyry 2006 CostTrac at 4th Quarter, 2006, Prices and Exchange Rates 32

33 Asia/China Expand in Growth Markets 2007B Revenue ~$600 MM EBITDA Margin* 12% Focus Focus on on China China Grow Grow IP IP Industrial Industrial Packaging, Packaging, Consumer Consumer Packaging, Packaging, and and Coated Coated Board Board businesses businesses Evaluate Evaluate paper paper and and pulp pulp options options Ship Ship to to China China from from low low cost cost IP IP regions regions Chengdu, PRC Industrial Pkg. plants (9) Consumer Pkg. plants (2) IP/Sun coated board JV (1) *Represents IP/ Sun JV Bangkok, Thailand Beijing, PRC Shenyang, PRC Dalian, PRC Sacheon, South Korea Tianjin, PRC Yanzhou Wuxi Guangzhou, PRC Dongguan 33

34 425 M TPY Greenfield Coated Board Investment (MM) Revenue (MM) EBITDA Margin ROI % West China Source: IP Analysis 34

35 IP / Sun Coated Board JV Existing Capacity 470M TPY 12% EBITDA Margin Beijing Shangdong Shanghai Hong Kong Jinan Qingdao Yanzhou Rizhao Concluded that Sun was the best: First-quartile delivered cost position Low capital cost Established market presence and quality products People 825M* TPY of coated board capacity (2 existing machines + 1 new machine) Capacity in short tons * 2009 Estimated Capacity Excellent fit with IP Technology and product lines Customers, segments IP s s global coated board network 35

36 IP / Sun JV Global Cost Curve Manufacturing Costs ($/Metric Tonne) Folding Carton Delivered to Shanghai with Import Duties Total Costs + Delivery to Shanghai IP / Sun JV 18 IP / Sun JV ,000 2,000 3,000 4,000 5,000 6,000 7,000 Cummulative Annual Capacity (000 Metric Tonnes) Based on Poyry 2006 CostTrac at 4th Quarter, 2006, Prices and Exchange Rates. Sun costs are from IP Estimates. Delivery includes $44 per metric tonne for imports into China 36

37 Summary Formula for Success Earnings have been consistent and increasing Market growth is very attractive Leading market positions Cost positions are outstanding EBITDA contribution outside North America is growing 37

38 2007 Priorities Building on a Solid First Quarter 2007 Improve Existing Businesses G Deliver on earnings from Selective Reinvestments Luiz Antonio IP/Sun JV Return Value to Shareholders About $2.5 Billion G G 38

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