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John V. FaraciChairman & CEOJohn V. FaraciChairman & CEO
UBS Global Paper and Forest Products Conference
September 16, 2008
2
Forward-Looking StatementsForward-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.
3
Statements Relating to Non-GAAP Financial MeasuresStatements 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.comunder Investors.
4
The New International Paper CompanyThe New International Paper Company
More-Focused Portfolio
Improved Earnings & Cash Flow
Lower-Cost Manufacturing Assets
More Global Balance
Balanced Use of Cash
5
Printing PapersPrinting Papers
PackagingPackaging
xpedxxpedx
Carter Holt HarveyKraft Papers
Arizona ChemicalKraft Packaging
Coated PapersWood Products
Forestland
Carter Holt HarveyKraft Papers
Arizona ChemicalKraft Packaging
Coated PapersWood Products
Forestland
Printing PapersPrinting Papers
PackagingPackaging
xpedxxpedx
Forest ResourcesForest Resources
Forest ResourcesForest Resources
2005 - $24.1B2005 - $24.1B 2007 - $27.1B2007 - $27.1B
2007 revenue figures include Weyerhaeuser CBPR 2007 full-year revenues of $5.2 billion
Greater FocusPro Forma Sales RevenueGreater FocusPro Forma Sales Revenue
68%
98%
6
Geographic StrengthConcentrating our FocusGeographic StrengthConcentrating our Focus
#5#4#5Western Europe
#1
Softwood Market Pulp
#1
Distribution
#1#1#1Global
#2China
#1#1Eastern Europe
#1#1Russia*
#1Latin America
#1#1#2North America
Coated Bleached
Board
Container Board & Boxes
Uncoated FreesheetRegion
* Includes Ilim
7
Higher & Better EBITDAImproving Earnings QualityHigher & Better EBITDAImproving Earnings Quality
1,700
4,100
2,800
1,900
500
(1,100)
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2005 DivestedBusinesses
Net 2005 Acquisitions & Business
Improvements
2007 ForestProducts
Actual
2007 ProForma
EBIT
DA
($ M
illio
ns)
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)
8
Higher & Better EBITDAImproving Earnings QualityHigher & Better EBITDAImproving Earnings Quality
2005EBITDA - $2.8B
2007 Pro FormaEBITDA - $4.1B(1)
Printing Papers
Packaging
Forest Products
13%
Distribution
Arizona Chemical
Coated Papers
Wood Products
Beverage Packaging
Printing Papers
Packaging
Forest Products
28%
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)
Ilim
9
Strong EBITDA & Cash FlowExecuting our Transformation PlanStrong EBITDA & Cash FlowExecuting our Transformation Plan
($0.4)Forest Products – 2008 Estimate
($1.0)Capital Expenditure - 2008 Estimate
($0.7)Interest Expense - 2008 Annualized
($0.2)Cash Taxes - 2008 Estimate
$1.1WY CBPR 2007 EBITDA + Synergies Estimate
$3.0EBITDA - 2007 Actual + IP’s share of Ilim*
$4.1EBITDA 2007 Pro Forma($0.2)IP’s share of Ilim - 2007 EBITDA Estimate
$1.6Free Cash Flow$3.80
$ Billions
Free Cash Flow per Share
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
10
Strong Cash FlowBalanced Use of CashStrong Cash FlowBalanced Use of Cash
Alternatives:Synergies
Business Improvement
High-Return InvestmentsReduced Overhead Expenses
Share RepurchasesCapacity Management
Dividend IncreaseReduced Capital Expenditures
Debt RepaymentWY Integration
Balanced Use of CashStrong Cash Flow
11
Workforce ChangesChanging our Cost StructureWorkforce ChangesChanging our Cost Structure
83
(5)
113
6514
(27)
(10)
(20)
0
20
40
60
80
100
120
2000 Divestments Productivity 2003 Divestments &Acquisitions
WeyerhaeuserCBPR
Acquisition
Productivity 2008 YTDActual
Thou
sand
s of
Em
ploy
ees
Excludes Ilim joint venture employees
12
10%
11%
12%
13%
14%
15%
16%
2003 2004 2005 2006 2007 6M2008YTD
Ove
rhea
d as
a %
of G
ross
Sal
esOverhead as % of SalesIncreasing our EfficiencyOverhead as % of SalesIncreasing our Efficiency
2010 Target = 11%
Overhead includes Selling & Administrative and Manufacturing Administrative expenses
13
$0.70
$1.33
$2.22
2005 2006 2007
Improving Absolute EPS From Core Business EarningsImproving Absolute EPS From Core Business Earnings
EPS from continuing operations before special itemsForest Products Earnings percentage based on operating incomeA reconciliation to GAAP EPS is available at www.internationalpaper.com under the Investors tab at presentations
24%39%54%Forest Products Earnings
North American Industrial PackagingNorth American Industrial Packaging
15
Corrugated box plantContainerboard mill
Etienne, France
Kenitra, Morocco
Global Industrial Packaging BusinessGlobal Industrial Packaging Business
Europe / N. Africa27 box plants
2 recycled board mills
Asia10 box plants
North America140 box plants15 board mills
19 recycling plants
16
Source: Pöyry CostTrac – 1st Quarter, 200842# and 26# Global Kraft Linerboard cash cost per ton delivered to ChicagoHenderson, Savannah 8, Mansfield 3 and Pensacola based on 26#
0
200
400
600
800
1,000
0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 30,000 33,000
Cumulative Annual Capacity (000 Short Tons)
Man
ufac
turi
ng C
osts
($/S
hort
Ton
)
Mansfield 1Prattville 1
Mansfield 3Savannah 6
VicksburgPineville
Savannah 8Pensacola
Prattville 2
Cedar RapidsValliant 1 Pine Hill 1 Valliant 3
HendersonAlbany 3
Albany 2
Springfield
Former WY MillIP Mill
Containerboard Global Cost Curve80% of IP Capacity in 1st & 2nd QuartilesContainerboard Global Cost Curve80% of IP Capacity in 1st & 2nd Quartiles
Campti 2
Campti 1
17
North American Containerboard Structural ChangesNorth American Containerboard Structural Changes
GP9%
JS7%
WY7%
IP7%TIN
7%
Other50%
SC13%
SSCC19%
GP10%
PCA6%
Other26%
TIN10%
IP29%
1995 Source: AF&PA, Company Reports, IP Analysis
1995 Producer PositionTop 2 = 22%Top 4 = 36%
2008 Producer PositionTop 2 = 48%Top 4 = 68%
2008 Source: RISI
18
310
360
410
460
510
560
610
$ / T
on
20022002 20032003 20042004 2007200720002000 20012001 20052005 20062006
North American Industry Selling Prices42 lb. Kraft LinerboardNorth American Industry Selling Prices42 lb. Kraft Linerboard
Sources: Selling Prices - RISI U.S. data, Margins – International Paper Industrial Packaging2008 margin does not reflect the $55 per ton price increase announced in July
Quarterly average sales price Trend
20082008
18% Margin10% Margin
6% Margin
19
North American Coated Paperboard Producer PositionNorth American Coated Paperboard Producer Position
MWV14%TIN
10%
IP35%
Potlatch9%
Other32%
1995 Source: AF&PA, Company Reports, IP Analysis
1998 Producer PositionTop 2 = 49%Top 4 = 68%
2008 Source: RISI
MWV20%
GP10%
Other20%
Potlatch11%
Rank Group11%
IP28%
2008 Producer PositionTop 2 = 48%Top 4 = 70%
20
0
200
400
600
800
1000
1200
1400
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000Cumulative Annual Capacity (000 Short Tons)
Man
ufac
turi
ng C
osts
($/S
hort
Ton
)
Augusta 3
Augusta 1
Riegelwood 18
Texarkana 1
Riegelwood 15
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.
Coated Paperboard Global Cost CurveIP North American Capacity in 1st QuartileCoated Paperboard Global Cost CurveIP North American Capacity in 1st Quartile
North American Printing PapersNorth American Printing Papers
22
Uncoated Freesheet Global Cost Curve94% of IP Capacity in 1st & 2nd QuartilesUncoated Freesheet Global Cost Curve94% of IP Capacity in 1st & 2nd Quartiles
0
200
400
600
800
1000
1200
1400
0 3,000 6,000 9,000 12,000 15,000 18,000 21,000 24,000 27,000 30,000 33,000Cumulative Annual Capacity (000 Short Tons)
Man
ufac
turi
ng C
osts
($/S
hort
Ton
)
Cash + Delivery to Chicago
Georgetown 1
Based on Poyry’s 2007 CostTrac model at 1st Quarter, 2008, Prices and Exchange Rates.
Franklin 3
Franklin 4
Eastover 2
Eastover 1
Courtland 35
Courtland 30, 34
Franklin 5Franklin 6
Riverdale 16
Riverdale 15
Ticonderoga 7
Ticonderoga 8
23
North American Uncoated FreesheetStructural ChangesNorth American Uncoated FreesheetStructural Changes
GP17%
IP12%
Boise9%
Champion9%Willamette
9%
WY8%
Other36%
Domtar32%
IP26%
Boise10%
GP7%
Other25%
1998 Source: Company Reports, IP Analysis
1998 Producer PositionTop 2 = 29%Top 4 = 47%
2008 Producer PositionTop 2 = 58%Top 4 = 75%
2008 Source: RISI
24
700
750
800
850
900
950
1000
1050
1100
$ / T
on
20022002 20032003 2004200420002000 20012001 20052005 20062006
North American Industry Selling Prices20 lb. Copy PaperNorth American Industry Selling Prices20 lb. Copy Paper
Quarterly average sales price Trend
20072007 20082008
12% Margin 8% Margin
13% Margin
Sources: Selling Prices - RISI U.S. data, Margins – International Paper NA Printing Papers
25
IP
Return is Operating Income before Special ItemsEach competitors’ corporate expenses and special items have been adjusted for comparative purposes
Return on Sales Margins2Q08 IP vs. Peer PerformanceReturn on Sales Margins2Q08 IP vs. Peer Performance
IP
IP
NA Industrial Packaging
Coated Paperboard
NA Paper & Pulp
0%
2%
4%
6%
8%
10%
12%
14%
xpedxxpedx
27
xpedxLargest N.A. distributor and IP’s largest customer
xpedxLargest N.A. distributor and IP’s largest customer
PrintingPapers61%
2007 Sales Mix
Packaging20%
Other20%
Printing Papers
60%
28
xpedx Margin Improvementxpedx Margin Improvement
Operating Expenses% of Gross Profit
80%81%82%83%84%85%86%87%88%89%90%
2002 2003 2004 2005 2006 2007
Revenue PerWarehouse Square Foot
$0.50
$0.55
$0.60
$0.65
$0.70
$0.75
2002 2003 2004 2005 2006 2007
•• 400 BP improvement since 2002400 BP improvement since 2002•• Each 100 BP improvement increases profits Each 100 BP improvement increases profits by $13 millionby $13 million
•• 34% increase in productivity since 200234% increase in productivity since 2002•• 12% decrease in total warehouse space12% decrease in total warehouse space
29
xpedx Strategyxpedx Strategy
Organic growth
Increase packaging volumes
Higher sales on same footprint
Buy / Handle / Sell initiatives
Strategic acquisitions
OperationsOutside North AmericaOperationsOutside North America
31
25%
75%
IP 6M2008 Annualized + WY CBPR 2007 Earnings + Synergies
Global BalanceDiversifying our Earnings CapacityGlobal BalanceDiversifying our Earnings Capacity
Operating profits exclude Forest Products and Special Items, and include IP’s share of Ilim joint ventureSynergies estimated at $400MM
North America Non-North America
32
IP Brazil Transforming Earnings and MarginsIP Brazil Transforming Earnings and Margins
33%
$315
$960
20082
22%
$150
$684
20051
EBITDA Margin
EBITDA
Sales Revenue
Note: 1 2005 results include sales and earnings from divested business2 2008 represents 6M08 YTD annualized
High demand growthLow-cost manufacturing
33
Três Lagoas - 2009 Start Up200k MT Integrated Paper MachineTrês Lagoas - 2009 Start Up200k MT Integrated Paper Machine
Jan’07
Jan’08
Nov’06 Nov’07
Jul’08
34
Ilim Joint VentureIlim 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 2008 – 2013 (to be funded by Ilim)
Ilim EBITDA margin is on a 100% basis before IP adjustments
35
Sun Paper Joint VentureSun Paper Joint Venture
2 machines - 425,000 metric TPY
3rd 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
IP-Sun JV,Yanzhou
36
International Paper SummaryInternational 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
John V. FaraciChairman & CEOJohn V. FaraciChairman & CEO
UBS Global Paper and Forest Products Conference
September 16, 2008