John V. Faraci Chairman & CEO. UBS Global Paper and Forest Products Conference

Transcription

1 John V. Faraci Chairman & CEO UBS Global Paper and Forest Products Conference September 16, 2008

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 from those expressed or implied in these statements. Factors which could cause actual results to differ relate to: (i) the company's ability to realize anticipated profit improvement from its transformation plan, including our ability to realize the expected benefits of our acquisition of the assets of Weyerhaeuser Company s containerboard, packaging and recycling business in light of integration difficulties and other challenges; (ii) increases in interest rates and our ability to meet our debt service obligations; (iii) industry conditions, including but not limited to changes in the cost or availability of raw materials and energy, transportation costs, competition we face, the company's product mix, demand and pricing for its products; (iv) global economic conditions and political changes, including but not limited to changes in currency exchange rates, credit availability, the company's credit ratings issued by recognized credit rating organizations and pension and health care costs; (v) unanticipated expenditures related to the cost of compliance with environmental and other governmental regulations and to actual or potential litigation; and (vi) whether we experience a material disruption at one of our manufacturing facilities. We undertake 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 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 The New International Paper Company More-Focused Portfolio Improved Earnings & Cash Flow Lower-Cost Manufacturing Assets More Global Balance Balanced Use of Cash 4

5 Greater Focus Pro Forma Sales Revenue Carter Holt Harvey Kraft Papers Arizona Chemical Kraft Packaging Coated Papers Wood Products Forestland $24.1B $27.1B Forest Resources xpedx Forest Resources xpedx Printing Papers 98% Printing Papers 68% Packaging Packaging 2007 revenue figures include Weyerhaeuser CBPR 2007 full-year revenues of $5.2 billion 5

6 Geographic Strength Concentrating our Focus Region Uncoated Freesheet Softwood Market Pulp Container Board & Boxes Coated Bleached Board Distribution North America #2 #1 #1 #1 Latin America #1 Russia* #1 #1 #1 Eastern Europe #1 #1 Western Europe #5 #4 #5 China #2 Global #1 #1 #1 * Includes Ilim 6

7 Higher & Better EBITDA Improving Earnings Quality 4,500 4,000 3,500 1, ,100 EBITDA ($ Millions) 3,000 2,500 2,000 1,500 1,000 2,800 (1,100) 1, Divested Businesses Net 2005 Acquisitions & Business Improvements 2007 Forest Products Actual 2007 Pro Forma Earnings from continuing operations before special items; 2007 Pro Forma includes Weyerhaeuser CBPR 2007 EBITDA of $0.7 billion and estimated run-rate synergies of 0.4 billion plus IP s share of Ilim EBITDA estimate of $0.2 billion (reported in equity earnings) 7

8 Higher & Better EBITDA Improving Earnings Quality 2005 EBITDA - $2.8B 2007 Pro Forma EBITDA - $4.1B (1) Coated Papers Beverage Packaging Wood Products Forest Products 28% Packaging Arizona Chemical Printing Papers Ilim Forest Products 13% Distribution Printing Papers Packaging Distribution (1) Calculated as IP 2007 EBITDA of $2.8 billion plus Weyerhaeuser CBPR 2007 EBITDA of $0.7 billion and estimated run-rate synergies of 0.4 billion plus IP s share of Ilim EBITDA estimate of $0.2 billion (reported in equity earnings) 8

9 Strong EBITDA & Cash Flow Executing our Transformation Plan EBITDA Actual + IP s share of Ilim* WY CBPR 2007 EBITDA + Synergies Estimate EBITDA 2007 Pro Forma IP s share of Ilim EBITDA Estimate Capital Expenditure Estimate Interest Expense Annualized Cash Taxes Estimate Forest Products 2008 Estimate Free Cash Flow Free Cash Flow per Share $ Billions $3.0 $1.1 $4.1 ($0.2) ($1.0) ($0.7) ($0.2) ($0.4) $1.6 $3.80 This is not a forecast; for Transformation Plan illustrative purposes only *IP s share of Ilim EBITDA estimate of $0.2 billion (reported in equity earnings) Free cash flow assumes that 2009 working capital does not change from 2008 levels 9

10 Strong Cash Flow Balanced Use of Cash Strong Cash Flow WY Integration Synergies Reduced Capital Expenditures Capacity Management Reduced Overhead Expenses Balanced Use of Cash Debt Repayment Alternatives: Dividend Increase Share Repurchases High-Return Investments Business Improvement 10

11 Workforce Changes Changing our Cost Structure (10) 100 (20) Thousands of Employees (27) 14 (5) Divestments Productivity 2003 Divestments & Acquisitions Weyerhaeuser CBPR Acquisition Productivity 2008 YTD Actual Excludes Ilim joint venture employees 11

12 Overhead as % of Sales Increasing our Efficiency 16% Overhead as a % of Gross Sales 15% 14% 13% 12% 11% 2010 Target = 11% 10% M2008 YTD Overhead includes Selling & Administrative and Manufacturing Administrative expenses 12

13 Improving Absolute EPS From Core Business Earnings $2.22 $1.33 $ Forest Products Earnings 54% 39% 24% EPS from continuing operations before special items Forest Products Earnings percentage based on operating income A reconciliation to GAAP EPS is available at under the Investors tab at presentations 13

14 North American Industrial Packaging

15 Global Industrial Packaging Business North America 140 box plants 15 board mills 19 recycling plants Europe / N. Africa 27 box plants 2 recycled board mills Etienne, France Kenitra, Morocco Asia 10 box plants Corrugated box plant Containerboard mill 15

16 Containerboard Global Cost Curve 80% of IP Capacity in 1 st & 2 nd Quartiles 1,000 Manufacturing Costs ($/Short Ton) Prattville 2 Prattville 1 Mansfield 1 Savannah 6 Savannah 8 Pensacola Vicksburg Mansfield 3 Pineville Henderson Campti 2 Valliant 1 Pine Hill 1 Valliant 3 Cedar Rapids Campti 1 Springfield Albany 2 Albany 3 Former WY Mill IP Mill 0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 30,000 33,000 Cumulative Annual Capacity (000 Short Tons) Source: Pöyry CostTrac 1 st Quarter, # and 26# Global Kraft Linerboard cash cost per ton delivered to Chicago Henderson, Savannah 8, Mansfield 3 and Pensacola based on 26# 16

17 North American Containerboard Structural Changes 1995 Producer Position Top 2 = 22% Top 4 = 36% 2008 Producer Position Top 2 = 48% Top 4 = 68% SC 13% GP 9% Other 26% SSCC 19% Other 50% TIN 7% IP 7% JS 7% WY 7% PCA 6% TIN 10% GP 10% IP 29% 1995 Source: AF&PA, Company Reports, IP Analysis 2008 Source: RISI 17

18 North American Industry Selling Prices 42 lb. Kraft Linerboard 610 6% Margin % Margin 10% Margin $ / Ton Quarterly average sales price Trend Sources: Selling Prices - RISI U.S. data, Margins International Paper Industrial Packaging 2008 margin does not reflect the $55 per ton price increase announced in July 18

19 North American Coated Paperboard Producer Position 1998 Producer Position Top 2 = 49% Top 4 = 68% 2008 Producer Position Top 2 = 48% Top 4 = 70% Other 32% IP 35% Other 20% IP 28% GP 10% Potlatch 9% TIN 10% MWV 14% Potlatch 11% Rank Group 11% MWV 20% 1995 Source: AF&PA, Company Reports, IP Analysis 2008 Source: RISI 19

20 Coated Paperboard Global Cost Curve IP North American Capacity in 1 st Quartile 1400 Manufacturing Costs ($/Short Ton) Riegelwood 15 Riegelwood 18 Augusta 3 Texarkana 1 Augusta ,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Cumulative Annual Capacity (000 Short Tons) Based on Poyry s 2007 CostTrac model at 1st Quarter, 2008, Prices and Exchange Rates. 57# Global Coated Paperboard cash cost per ton delivered to Chicago. 20

21 North American Printing Papers

22 Uncoated Freesheet Global Cost Curve 94% of IP Capacity in 1 st & 2 nd Quartiles 1400 Cash + Delivery to Chicago Manufacturing Costs ($/Short Ton) Eastover 1 Courtland 35 Franklin 3 Franklin 5 Franklin 6 Riverdale 15 Riverdale 16 Franklin 4 Georgetown 1 Courtland 30, 34 Eastover 2 Ticonderoga 7 Ticonderoga ,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 30,000 33,000 Cumulative Annual Capacity (000 Short Tons) Based on Poyry s 2007 CostTrac model at 1 st Quarter, 2008, Prices and Exchange Rates. 22

23 North American Uncoated Freesheet Structural Changes 1998 Producer Position Top 2 = 29% Top 4 = 47% 2008 Producer Position Top 2 = 58% Top 4 = 75% Other 36% GP 17% IP 12% Other 25% Domtar 32% WY 8% Willamette 9% Champion 9% Boise 9% GP 7% Boise 10% IP 26% 1998 Source: Company Reports, IP Analysis 2008 Source: RISI 23

24 North American Industry Selling Prices 20 lb. Copy Paper % Margin $ / Ton % Margin 8% Margin Quarterly average sales price Sources: Selling Prices - RISI U.S. data, Margins International Paper NA Printing Papers Trend

25 Return on Sales Margins 2Q08 IP vs. Peer Performance 14% 12% IP 10% 8% 6% IP 4% 2% IP 0% NA Industrial Packaging Coated Paperboard NA Paper & Pulp Return is Operating Income before Special Items Each competitors corporate expenses and special items have been adjusted for comparative purposes 25

26 xpedx

27 xpedx Largest N.A. distributor and IP s largest customer 2007 Sales Mix Other 20% Printing Packaging Papers 20% 61% Printing Papers 60% 27

28 xpedx Margin Improvement 90% 89% Operating Expenses % of Gross Profit $0.75 Revenue Per Warehouse Square Foot 88% 87% $ % 85% $ % 83% $ % 81% $ % $ BP improvement since 2002 Each 100 BP improvement increases profits by $13 million 34% increase in productivity since % decrease in total warehouse space 28

29 xpedx Strategy Organic growth Increase packaging volumes Higher sales on same footprint Buy / Handle / Sell initiatives Strategic acquisitions 29

30 Operations Outside North America

31 Global Balance Diversifying our Earnings Capacity IP 6M2008 Annualized + WY CBPR 2007 Earnings + Synergies 25% 75% North America Non-North America Operating profits exclude Forest Products and Special Items, and include IP s share of Ilim joint venture Synergies estimated at $400MM 31

32 IP Brazil Transforming Earnings and Margins Sales Revenue EBITDA EBITDA Margin $684 $150 22% $960 $315 33% High demand growth Low-cost manufacturing Note: results include sales and earnings from divested business represents 6M08 YTD annualized 32

33 Três Lagoas Start Up 200k MT Integrated Paper Machine Nov 06 Jan 07 Nov 07 Jan 08 Jul 08 33

34 Ilim Joint Venture Strong customer base in Russia & China Solid economic growth High demand growth Low-Cost Manufacturing Business performing at plan 20%+ EBITDA margins Many margin improvement opportunities Ilim board of directors approved $2 billion capital plan for (to be funded by Ilim) Ilim EBITDA margin is on a 100% basis before IP adjustments 34

35 Sun Paper Joint Venture 2 machines - 425,000 metric TPY IP-Sun JV, Yanzhou 3 rd machine - 380,000 metric TPY World-class capacity at 40% of traditional capital cost High demand growth region Low-cost manufacturing New Sun Coated Paperboard Machine 35

36 International Paper Summary Different Company More-Focused Portfolio Improved Earnings & Cash Flow Lower-Cost Manufacturing Assets More Global Balance Balanced Use of Cash Ability to generate cost-of-capital returns 36

37 John V. Faraci Chairman & CEO UBS Global Paper and Forest Products Conference September 16, 2008