International Paper Company · NYSE:IP
International Paper — International Paper Co /New/ — CS First Boston Global Basics Conference 2005
46 slides from International Paper's conference presentation, Mar 3, 2005
Slide 1: John V. Faraci, Chairman & CEO
John V. Faraci Chairman & CEO CS First Boston Global Basics Conference March 3, 2005
Slide 2: Forward Looking Statement
Forward Looking Statement Statements on these slides or in this presentation that are not historical are forward-looking. These statements are subject to risks and uncertainties that could cause actual results to differ materially, including but not limited to, the strength of demand for the company
Slide 3: Statements Relating to the Use of Non-GAAP Financial Measures
Statements Relating to the Use of Non-GAAP Financial Measures During the course of this presentation, certain non-U.S. GAAP financial information will be presented. Reconciliations of those numbers to U.S. GAAP financial measures is available on the company’s website at www.internationalpaper.com un
Slide 4: Agenda
Agenda Progress & 2005 Outlook Current Priorities Deliver Non-Price Improvement Maintain Financial Discipline Strategic Goals Achieve ROI Target Rebalance Portfolio Expand in High Return, Growth Markets
Slide 5: Financial Performance
Financial Performance Revenues ($B) 25.4 25.5 23.9 24.0 2001 2002 2003 2004 Earnings Per Share* ($) 1.5 1.31 1.05 0.76 0.5 0.36 2001 2002 2003 2004 *Basic EPS from continuing operations and before special items
Slide 6: 12M'04 vs. 12M'03 EPS from continuing operations
12M’04 vs. 12M’03 EPS from cont. ops before special items EPS $ / Share $1.80 $1.50 $1.20 $0.90 $.76 $0.60 $0.30 $0.00 $.31 $.40 $.32 ($.29) ($.14) ($.07) $.02 $1.31 Paper ($0.06) Packaging $0.06 Wood Prod $0.28 Other $0.03 Wood Costs ($0.10) Energy ($0.10) Other ($0.09) Int. Expense $0.15 Corporate
Slide 7: 2005 Outlook
2005 Outlook 2-3% demand growth Good operating rates Prices Previously announced IP 2004 paper increases continue to be implemented IP announced 2005 price increases – full effect later in the year Costs Customer Benefits High energy & chemical costs. Wood costs moderate with dry weather Higher pens
Slide 8: Current Priorities
Current Priorities Deliver non price improvement Lower costs Improve mix & volumes Maintain financial discipline Optimize capital allocation Strengthen the balance sheet
Slide 9: Internal Initiatives
Internal Initiatives Non price improvement status $ billions Lower Costs & Create Efficiencies Improve Mix Grow Volumes Gross Improvement Higher Costs/Inflation Non-Price Improvement After Inflation Manufacturing Excellence Supply Chain Lower S&A/Other Segmenting Solutions New Products Targeted Segm
Slide 10: Lower Costs—Manufacturing Excellence
Lower Costs—Manufacturing Excellence Machine efficiency up 3 percentage points OME 85% 84% 83% 82% 81% 80% 75% 2001 2002 2003 2004
Slide 11: Lower Costs—Energy
Lower Costs—Energy Natural gas consumption down 33% since 2002 Trillion BTUs 80 60 40 20 0 $6.47 $5.80 60 $3.45 45 40 $/MMBTU 6 5 4 3 2 1 0 2002 2003 2004 Natural Gas Consumed Natural Gas Cost per unit Total US Mill Energy Purchases before Natural Gas Hedges—$MM $680 $815 $845
Slide 12: Supply Chain Initiative
Supply Chain Initiative Lower costs, improve efficiencies & service Improve processes related to IP’s $3.5 billion costs to serve & deliver Procurement Transportation Warehousing Order Management Scheduling Invoicing Working Capital Management
Slide 13: Supply Chain Initiative: Costs and Benefits
Supply Chain Initiative Lower costs, improve efficiencies & service Costs $500+ million external spending $100 million incremental hires Major expense $180 million/year in 2005 & 2006 Benefits $400—500 million annual savings beginning 2007/08: Lower sourcing $200 Lower logistics $180 Better scheduli
Slide 14: Supply Chain: Helping IP and its customers
Supply Chain Helping IP and its customers Supply Chain Initiative Increases IP’s & Customer’s Profitability
Slide 15: Supply Chain: Old Method vs. New
Supply Chain Helping IP and its customers Old Method IP Inventory Customer tracks usage & orders Mill IP Warehouse Customer New Supply Chain IP tracks usage & automatically replenishes IP Inventory Mill Customer
Slide 16: Supply Chain: Benefits
Supply Chain Helping IP and its customers IP Benefits Lower freight costs Eliminated warehouse Reduced working capital Lower invoice processing More business Fewer stock outs Reduced working capital Lower procurement/ buyer eliminated Less emergency premium purchases More business
Slide 17: Improve Mix & Volumes: Winning with customers
Improve Mix & Volumes Winning with customers 2004 vs. 2002 Revenue Change Rank Order by IP Sales Revenue 1 320% 50% 40% 30% 30% 30% 20% 10% 10% 11 7 13 12 4 6 1 2 9 FedEx/Kinko’s National Envelope Home Depot Altria Xerox Corp. Perseco Staples, Inc. RR Donnelly Cenveo/Mail-Well
Slide 18: Grow value-added products
Improve Mix & Volumes Grow value-added products Value-added and mill branded cut-size have significantly higher growth rates & better margins than private label cut-size Volume Growth % 10 8 6 4 2 0 Private label cut-size = 1.0 Margin Index 2.5 2.0 1.5 1.0 0.5 0.0 Growth Rate Margin Value-added Mill
Slide 19: Maintain Capital Discipline
Maintain Capital Discipline Optimize capital allocation Maintain capex at 75-85% of depreciation over a cycle ($1.2—1.4 billion per year) Allocate capital to those businesses with best returns in North America & elsewhere
Slide 20: 2005 Capex $1.4 billion
Maintain Capital Discipline 2005 Capex $1.4 billion Productivity & Cost 45% Maintenance 30% Growth 15% Regulatory 10%
Slide 21: Reduce debt 2005-2006
Maintain Capital Discipline Reduce debt 2005-2006 Targeting $3 billion reduction to $12 billion gross debt by year-end 2006 Since year-end 2004, repaid $1.3 billion debt
Slide 22: Strategic Goals
Strategic Goals Achieve ROI target Rebalance portfolio Expand in emerging markets
Slide 23: Achieve ROI Target
Achieve ROI Target: To Be Among BEST Industrials IP Goal $1.5 B non-price improvement Trend line pricing 4% ROI Rebalance the portfolio 9% ROI Increase ROI by 500 basis points to 9% at trend line prices
Slide 24: Rebalance the Portfolio
Rebalance the Portfolio Divest non-strategic assets Invest in best performing strategic businesses North America Emerging economies Expand in fast growing, low cost markets Eastern Europe Latin America – focus on Brazil Asia – focus on China
Slide 25: Rebalancing the Portfolio
Rebalancing the Portfolio Exit Completed CHH Tissue Minor European assets Weldwood Canada Maine/NH Timberlands Pending Fine Papers Industrial Papers CHH Forests (25%) Invest Completed/Ongoing Box USA E. Europe capex Eastover capex—UFS Pending Brazil pulp/paper mill
Slide 26: Forest Products: U.S. forestlands
Forest Products U.S. forestlands Acres (million) 14 12 10 8 6 4 2 0 Union Camp & Champion acquisitions 12.1 10.4 9.0 8.3 7.1 6.8 6.1 6.1 6.4 6.3 5.9 1994 1996 1998 2000 2002 2004
Slide 27: Rebalancing the Portfolio
Rebalancing the Portfolio Exit Completed CHH Tissue Minor European assets Weldwood Canada Maine/NH Timberlands Pending Fine Papers Industrial Papers CHH Forests (25%) Invest Completed/Ongoing Box USA E. Europe capex Eastover capex—UFS Pending Brazil pulp/paper mill
Slide 28: Expand Globally
Expand Globally High returns and current expertise % Total 100 80 60 40 20 0 20% 25% 40 % Capital Employed Sales EBIT Non-North America North America Better than average margins Low cost Growth markets IP already there with proven track record & management Customers seek global partners Channel acce
Slide 29: IP European Paper Mills
IP European Paper Mills Inverurie Svetogorsk Kwidzyn Saillat
Slide 30: Success in Russia
Success in Russia Svetogorsk, Russia Uncoated 300,000 tpy Liquid Pkg. Board 100,000 tpy
Slide 31: wTenNarionat Cp) paren
wTenNarionat Cp) paren a
Slide 32: Success in Russia
Success in Russia TeRNaTionat () PAPER 32
Slide 33: Success in Russia
Success in Russia
Slide 34: wwennaTionat @B)pareR
wwennaTionat @B)pareR 34
Slide 35: Success in Russia: Today
Success in Russia Today
Slide 36: Success in Russia: Tomorrow
Success in Russia Tomorrow liquid packaging board uncoated paper BCTMP pulp line +15,000 tpy +60,000 tpy +200,000 tpy 2
Slide 37: Success in Russia
Success in Russia
Slide 38: High Return, Emerging Markets
High Return, Emerging Markets Current & future opportunities Asia / China Latin America Eastern Europe
Slide 39: First Year Reflections
First Year Reflections Think globally Maintain focus on customers Adapt to changing world Invest in best returns & businesses / make choices Execution is key Listen to shareowners _ _ _ _ _ _
Slide 40: IP into the Future
IP into the Future Current Priorities Committed to increasing profitability & returns Focus on non-price improvement Narrow business focus Strategic Goals Profitably grow in emerging markets Increase value to shareholders
Slide 41: International Paper
INTERNATIONAL ((\) PAPER
Slide 42: Appendix
Appendix
Slide 43: International Paper Profile
International Paper Profile Global paper and forest products company $26 billion in revenues 80,000 employees worldwide Focused on three core businesses Operations in over 40 countries and selling products in more than 120 nations
Slide 44: Focus on Three Core Businesses: Paper
Focus on Three Core Businesses Paper Paper 51% of 2004 Revenue Number one uncoated papers position globally Largest coated paper producer in North America xpedx is the largest merchant distributor in the U.S.
Slide 45: Focus on Three Core Businesses: Packaging
Focus on Three Core Businesses Packaging Packaging 28% of 2004 Revenue Largest bleached board producer globally Number three containerboard position globally Strong corrugated box businesses in U.S. and Europe
Slide 46: Focus on Three Core Businesses: Forest Products
Focus on Three Core Businesses Forest Products Forest Products 17% of 2004 Revenue Number two largest private landowner in U.S. Significant lumber and plywood producer in U.S.
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