strategy and Q3 results SVP, Head of Investor Relations, Ulla Paajanen-Sainio
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. 2
Renewable materials more than 60% in growth mode* Consumer Board Packaging Solutions Biomaterials Building and Living Printing and Reading Renewable Packaging Sales 1 033 m Op EBITDA 153 m Sales 1 867 m Op EBITDA 115 m Sales 4 319 m Op EBITDA 290 m Sales 3 272 m Op EBITDA 522 m Op ROOC 13.3% Capex 204 m Op ROOC 3.8% Capex 368 m Op ROOC 13.9 % Capex 28 m Op ROOC 1.4 % Capex 137 m All figures full year 2013, m=meur *Growth businesses: Renewable Packaging, Biomaterials and Building and Living. Cash focus: Printing and Reading 3
Mega and market trends Substitutes for non-fiber Increased demand for sustainable solutions combined with intensified regulatory requirements regarding extended producer responsibility Increased awareness of sustainability issues drives the demand for renewable products and solutions on a global level Increased demand for smart fibre-based solutions to improve cost efficiency in the supply chain Income growth and change of lifestyle Increased purchase power in emerging markets and especially in Asia Increased demand for smaller packages to allow for smaller volume purchases Growing mobile lifestyle which triggers demand for prepared and small packaged meals on the go Urbanisation Demand for affordable construction materials and solutions to meet the need for increased demand for urban housing Lack of space increases the demand for smart living and efficient land use Smaller households drive demand for small packages Densely populated areas increase demand for renewable solutions to cut waste Digitalisation Increased demand for intelligent and safe packaging solutions to serve the demands of online retail Increased use of digital media which affects demand for graphic paper Increased use of digital printing which opens up potential for new swift cost efficient print processes and on-demand production processes 4
Snapshot of current demand for our products Packaging Hardwood BHK pulp Softwood BSK pulp Disposable income Tissue and packaging demand Tissue and packaging demand Sawn timber Graphic paper Carton board Housing starts Digitalisation Growing population 5
Time for us to reclaim the market! s business strategy is to transform from a traditional paper and board producer to a customer focused renewables materials company. Our business idea is to replace non-renewable materials with products and solutions based on renewable materials. We are proud to be actively involved in the transformation of the value chain. Our market driven products and solutions are sustainable and innovative and now it is time for us to align and reclaim the market.
Glocal position capacity and biological asset allocation Paper and board capacity by country 2014 Chemical Pulp capacity by country 2014 Biological assets by country as at Dec 2013 Finland 40% Finland 56% Finland 15% Finland 39% Total assets by country as at Dec 2013 Sweden 26% Sweden 22% Sweden 61% Sweden 27% Poland 5% Poland 2% Germany 13% Germany 6% Brazil 5% Brazil 6% Brazil 2% Brazil 11% China 3% China 14% China 5% Other countries 16% Other countries 11% Uruguay 4% Uruguay 4% Uruguay 9% 7
1,3 1,9 0,5 0,9 7,9 14,8 6,1 6,4 3,7 4,3 1,2 1,9 Strongest growth in packaging will be in Asia Increasing demand of consumer board in China CAGR 0.4% CAGR 1.1% CAGR 3.8% CAGR 5.4% Eastern Europe North America Western Europe 2013 2025 Million tonnes CAGR 3.3% South America CAGR 3.4% Rest of the world China and Asia Pacific Source: Pöyry, June 2014: Cartonboard market update and outlook Includes SBS, FBB, CUK, LPB and FSB 8
Corrugated packaging grows also in Europe 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 9
Chemical market pulp demand to increase from 55 to 60 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 10
Major biomass components half of this is burnt now 11
Investing in sustainable business Montes del Plata Pulp mill investment of EUR 1 721 million in Uruguay, joint operation Annual production capacity 1.3 million tonnes - s share 650 000 tonnes - s share of 2014 production 245 000-275 000 tonnes, due to typical instability of the ramp-ups Guangxi Partnering with IFC (equity and loan) FSC and PEFC certified plantation Key equipment selected Site levelling work mainly completed, next steps waiting for the permits Phase one: board machine operational early 2016 as previously announced Varkaus conversion EUR 110 million for conversion EBITDA margin above 15% Start up Q4 2015 Capacity 390 000 tonnes of kraftliner Uncoated fine paper capacity to reduce by 280 000 tonnes Virdia demonstration plant New investment in a demonstration and market development plant in the USA for the extraction and separation of highly pure sugars from biomass to be converted into differentiated biochemicals. Demonstration and market development plant to be built at Raceland, Louisiana, USA 12
Non-core asset divestment and restructuring Non-core asset divestments: Corenso core and coreboard operations to Powerflute, cash consideration approximately EUR 75 million expected Q4, announced Q3 2014 Thiele Kaolin, cash consideration EUR 56 million, Q1 2014 Restructuring: Uetersen Mill sales purchase agreement was discontinued in Q3 Planned divestment cancelled 13
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 14
Summary financials Q3 2014 EUR million Q3/14 Q3/13 Change % Change % Q3 14 / Q3 13 Q2/14 Q3 14 / Q2 14 Sales 2 514 2 553-1.5 2 579-2.5 Operational EBITDA 333 319 4.4 326 2.1 Operational EBITDA, % 13.2 12.5 12.6 Operational EBIT 210 184 14.1 209 0.5 Operational EBIT margin, % 8.4 7.2 8.1 Profit before tax excl. NRI 116 126-7.9 145-20.0 EPS excl. NRI, EUR 0.12 0.13 0.13 EPS (basic), EUR 0.15 0.11 0.00 Operational ROCE, % 9.7 8.3 9.8 Operational ROCE, % excl. transformation investments 13.0 10.2 12.7 Cash Flow from Operations 257 347-25.9 288-10.8 Net debt/last 12 months operational EBITDA 2.8 3.1 2.8 15
Financial performance - divisions Sales, EBITDA margins and EBIT margins Renewable Packaging Sales, MEUR Operational EBITDA margin Operational EBIT margin Biomaterials Sales, MEUR Operational EBITDA margin Operational EBIT margin 860 840 820 800 780 760 740 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 25% 20% 15% 10% 5% 0% 290 280 270 260 250 240 230 220 210 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Building and Living Printing and Reading Sales, MEUR Operational EBITDA margin Operational EBIT margin Sales, MEUR Operational EBITDA margin Operational EBIT margin 600 12% 1400 12% 500 400 300 200 100 10% 8% 6% 4% 2% 1200 1000 800 600 400 200 10% 8% 6% 4% 2% 0% -2% 0 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 0% 0 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3-4% 16
Sensitivity analysis 10% change, impact on operational EBIT 10% decrease in Impact* Energy prices Wood prices Chemical and filler prices Positive EUR 13 million Positive EUR 187 million Positive EUR 59 million 10% increase in Impact* Market pulp price, total Positive EUR 95 million 10% strengthening against Euro in the value of US dollar Swedish krona British pound Impact* Positive EUR 103 million Negative EUR 74 million Positive EUR 46 million *Impact on operational EBIT for the next twelve months. An increase of energy, wood or chemical and filler prices or decrease of pulp prices, as well as weakening of the currencies would have the opposite impact. 17
Forecast for capex in 2014 EUR million Forecast 2014* Capital expenditure 790 840 Depreciation 550 560 * Capital expenditure includes approximately EUR 260 million for the project in Guangxi, China. These figures do not include the acquisition of Bergvik Skog and Virdia shares. 18
Guidance for Q4 2014 Compared to Q3 2014 Sales are estimated to be roughly similar to the EUR 2 514 million Operational EBIT is expected to be somewhat lower than EUR 210 million Due to normal seasonal weakness in the Renewable Packaging and Building and Living divisions 19
Transformation journey continues Sales and operational EBIT 2006 Sales Q3 2014 Sales 20XX Sales 21 % -3 % 34 % 0 % 38 % 30 % 12 % 70 % 17 % 11 % 70 % Paper Growth businesses -3 % 1 % 16 % 35 % 11 % 6 % 62 % 62 % 10 % 2006 Operational EBIT Q3 2014 Operational EBIT 20
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Balance sheet strength Q1 2012 Q3 2014 3 600 3 500 3 400 3 300 3 200 3 100 3 000 2 900 2 800 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 3,5 3,0 2,5 2,0 1,5 1,0 0,5 0,0 Net Debt, MEUR Net Debt/Operational EBITDA* *Last twelve months operational EBITDA 22