s strategy and market environment Nordea Forest Products & Paper Seminar, 28 May 2014 CFO Seppo Parvi
It should be noted that certain statements herein which are not historical facts, including, without limitation those regarding expectations for market growth and developments; expectations for growth and profitability; and statements preceded by believes, expects, anticipates, foresees, or similar expressions, are forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995. Since these statements are based on current plans. estimates and projections, they involve risks and uncertainties which may cause actual results to materially differ from those expressed in such forward-looking statements. Such factors include, but are not limited to: (1) operating factors such as continued success of manufacturing activities and the achievement of efficiencies therein, continued success of product development, acceptance of new products or services by the Group s targeted customers, success of the existing and future collaboration arrangements, changes in business strategy or development plans or targets, changes in the degree of protection created by the Group s patents and other intellectual property rights, the availability of capital on acceptable terms; (2) industry conditions, such as strength of product demand, intensity of competition, prevailing and future global market prices for the Group s products and the pricing pressures thereto. price fluctuations in raw materials, financial condition of the customers and the competitors of the Group, the potential introduction of competing products and technologies by competitors; and (3) general economic conditions, such as rates of economic growth in the Group s principal geographic markets or fluctuations in exchange and interest rates. 28 May 2014 2
Growth businesses around 60% of sales European paper 33% of sales in Q1 2014 Printing and Living* Biomaterials* Renewable Packaging* Printing and Reading Sales EUR 4 319 million Operational EBITDA EUR 290 million Operational ROOC 1.4 % CAPEX EUR 137 million Sales EUR 1 033 million Operational EBITDA EUR 153 million Operational ROOC 3.8% Sales EUR 3 272 million Operational EBITDA EUR 522 million Operational ROOC 13.3% Building and Living Sales EUR 1 867 million Operational EBITDA EUR 115 million Operational ROOC 13.9 % CAPEX EUR 28 million CAPEX EUR 368 million 28 May 2014 CAPEX EUR 204 million *2013 FY figures 3
Company strategy Transformation from a European pulp and paper company to a value creating, growth markets renewable materials company 28 May 2014 4
Growth Renewable Packaging Plantation based pulp Building and Living Cash Printing and Reading Nordic market pulp Low cost base saw milling 5
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Annualized demand [kt/a] Y-o-Y change % European paper demand continued to decline, at slightly lower rate European paper demand trend development 40000 39000 38000 37000 6% 4% 2% 0% 36000 35000 34000 33000-2% -4% -6% -8% 32000 31000 Y-o-Y Paper Annualized Paper -10% -12% 30000-14% SA = seasonally adjusted Source: PPPC, Euro-Graph 28 May 2014 6
Transforming to value creating growth Skoghall, Sweden, woodyard logistics, investment started up on time, in Nov 2012 Sunila, Finland, lignin extraction plant and dryer, lignin dust burners in the lime kilns and a packing line, start up during Q1 of 2015 Varkaus, Finland, conversion of fine paper machine to light-weight containerboard, start up during Q4 of 2015 Montes del Plata. Uruguay Start-up in the coming weeks Bulleh Shah Packaging Limited, Pakistan JV, Q2 2013 Completed In implementation Inpac acquisition: India and China, Q3 2011 Ostroleka, Poland Container board machine, investment started up in Jan 2013, 6 weeks ahead of schedule Guangxi, China Pulp and Board mills, investment in two phases 28 May 2014 7
Montes del Plata entering the market with 1.3 Mt/a Chemical market pulp demand to increase from 55.1 to 60.0 Mt in 2013 2018 (Kt) 70 000 100% 60 000 95% 50 000 90% 40 000 85% 30 000 20 000 80% 10 000 75% 0 2013 2014 2015 2016 2017 2018 Capacity Demand Supply/Demand balance 70% Source: Pulp and Paper Products Council, 2014 28 May 2014 8
Global Market Pulp demand by end use 2013 Coated WF 15 % Mechanical P&R 4 % Tissue 27 % Uncoated WF 20 % Fluff 10 % Packaging 8 % Speciality 16 % Source: Hawkins Wright 28 May 2014 9
Guangxi consumer board machine operational in 2016 The Chinese overall board market will maintain stable growth in the near future Estimated Chinese virgin fibre based Consumer Board market growth China Consumer Board market incl. WLC*, demand-supply (Kt) 8 000 7% CAGR (Kt) 12 000 Capacity Production Demand 7 000 6 000 11 000 10 000 9 000 5 000 4 000 8 000 7 000 6 000 3 000 5 000 4 000 2 000 3 000 1 000 2 000 1 000 0 0 Source: Pöyry, Ipsos, RISI, PIRA, Euromonitor & Internal Estimates Source: Ipsos *White lined chipboard 10
Varkaus fine paper conversion to kraftliner in 2015, Ostrołęka added RCP-based containerboard in 2013 Market development - Corrugated packaging Nordic SC Fluting Global market size (kt) RCP based containerboard Europe (kt) (Kt) (Kt) 1000 800 760 + 80 Kt + 1.4% 840 25000 20000 19061 + 2 514 Kt + 1.8% 21575 600 15000 400 10000 200 5000 0 2013 2020 0 2013 2020 Kraftliner Europe (kt) Corrugated packaging* (kt) (Kt) (Kt) 7000 6000 5000 4000 3000 2000 1000 0 5240 + 898 Kt + 2.3% 6138 2013 2020 6000 5000 4000 3000 2000 1000 0 3978 + 840 Kt + 2.8% 4818 2013 2020 Market Source: Pöyry 2013, ICCA, PIRA, Analysis *Sweden, Finland, Poland, Russia, Baltic, Hungary 11
s plantations and forest assets Bergvik Skog, Sweden 2.3 million ha of land in Sweden, 95 000 ha in Latvia (ownership of 49%) Tornator, Finland 595 000 ha of forestland in Finland, 12 000 ha in Romania, and 13 000ha in Estonia (ownership 41%) Guangxi, Southern China (leased) 90 000 ha of land of which 75 000 ha eucalyptus, 9 000 ha other species Veracel plantations, Brazil 212 000 ha of land of which 92 000 ha eucalyptus plantations Rio Grande do Sul, Brazil 45 000 ha of land of which 21 000 ha eucalyptus plantations Montes del Plata, Uruguay 247 000 ha of land of which 136 000 ha planted In addition, leased plantations: - Laos: trial plantation, 2 200 ha - Russia: 418 000 ha - Czech Republic: 144 000 ha Fair value of Biological assets and Group s indirect share of forest assets is as of 31 Dec 2013, in total EUR 2 719 million 28 May 2014 12
Transformation on-going Sales 2006 2013 20XX -2% 11% 18 % 41 % 30 % 24% 66% 31 % 70 % 10 % Publication Paper, Fine Paper and Paper Merchants Packaging Boards Wood Products Wood Supply and Other 28 May 2014 13
Q1 financial results
Lower costs improved profits Q1 2014 year-on-year Clearly higher Operational EBIT due to lower costs, lower depreciation and restructuring Operational EBIT EUR 182 million or 7.1% (4.4%), increase EUR 64 million Nearly all of the original cost reductions of the EUR 200 million programme visible in the financial results, earlier than anticipated Net debt to Operational EBITDA decreased to 2.8 (3.1) Operational ROCE 8.6% (5.1%) Jouko Karvinen has decided to leave his position. He will continue as CEO until a successor is found. 28 May 2014 15
Printing and Reading improved Operational EBIT by EUR 33 million Q1 2014 year-on-year Operational EBIT: Costs significantly lower EUR 21 million lower depreciation Capacity closures MEUR Seasonally lower cash flow Veitsiluoto PM 1 closure No production at Corbehem since January 2014 28 May 2014 16
divests its Uetersen Mill in Germany Specialty and coated fine paper (60 000 tonnes) To be completed in mid-july 2014 In line with strategic transformation Annual sales reduction EUR 155 million Operational EBIT and cash flow enhancing from the Q3 Capacity reduction around 240 000 tonnes 28 May 2014 17
Biomaterials Q1 2014 MdP Pulp Mill ready for start-up after receiving operation permits In 2014 s share of production 350 000-400 000 tonnes Biorefinery investment to Sunila 14% 12% 10% 8% Softwood pulp prices increased in Q1 2014 (y-o-y and q-o-q) 6% 4% Hardwood pulp prices were somewhat stable in Q1 (q-o-q), with a slight decrease y-o-y 2% 0% Q1 2013 Q1 2014 ROOC (%) ROOC (%) excl str. projects 28 May 2014 18
Building and Living continued solid performance Q1 2014 year-on-year Operational EBIT: Sales prices higher Costs clearly lower, partially due to early cost reductions MEUR Efficiency improvement: Closure of Sollenau, Austria and Investment to Murow, Poland 28 May 2014 19
Renewable Packaging increased profit by EUR 24 million Q1 2014 year-on-year Operational EBIT: Higher sales prices Clearly lower costs Guangxi: IFC equity and loan 2/3 of the levelling work completed Key equipment selected Harvesting the plantations and selling the wood Board machine operational early 2016 as previously announced Q2 maintenance Ostrołęka and Imatra pulp MEUR 28 May 2014 20
Forecast for Capex and Equity Injections in 2014 EUR million Forecast 2014* Capital expenditure 760 840 Equity injections 30 Total 790 870 Depreciation 550 580 * Capital expenditure includes approximately EUR 260 million for the project in Guangxi, China and approximately EUR 125 million for Montes del Plata Pulp Mill in Uruguay. 28 May 2014 21
Guidance Compared to Q1 2014 Sales expected to be similar Operational EBIT in line with EUR 182 million Maintenance in Biomaterials and Renewable Packaging Ostrołęka Mill shutdown extended by Polish national electricity grid maintenance break in Q2 28 May 2014 22