UPM Annual Report 2016

Strategy

In brief

Businesses

Stakeholders

Governance

Accounts

UPM’s strategic focus areas

UPM’s Biofore strategy includes continuous improvement programmes and short-term actions to drive performance; mid-term growth projects as well as mid- to long-term development work to create new, high value-added growth. UPM develops its business portfolio in order to increase the long-term shareholder value.

Grow with Biofore

1

2

3

4

PERFORMANCE

GROWTH

PORTFOLIO

INNOVATION

Continuous improvement in performance UPM is committed to continuous improvement in its financial, social and environmental performance. Each business area targets top relative performance in their respective markets. • UPMhas group-wide continuous improvement programmes for reducing variable costs, optimising maintenance and site operations as well as releasing working capital • Similarly, UPMhas continuous improvement programmes for the health and safety of employees and contractors and environmental performance • The programmes continued to yield strong results in 2016: variable and fixed costs decreased significantly. Lost-time accident frequency continued to decrease, and resource efficiency continued to improve. The work will continue in 2017 and beyond • UPM aims for efficient use of its assets. In UPMPaper ENA, this also means adjusting production capacity according to customer demand • UPM sees good governance, industry-leading environmental performance, responsible sourcing and a safe working environment as important sources of competitive advantage

Sustainable returns with focused growth projects UPM aims to capture growth opportunities in its business portfolio. The company invests in projects with attractive and sustainable returns, supported by clear competitive advantage. Projects already contributing: EUR 680 million investments, with an EBITDA target of EUR 200 million. In 2016, UPM achieved 80% run- rate of the target. • UPMPietarsaari, UPMFray Bentos and UPMKymi pulpmill expansions • UPMLappeenranta renewable diesel biorefinery • UPMRaflatac label stock factory expansions in Asia Pacific region and Poland • UPMChangshu specialty paper machine Projects under construction or at the beginning of ramp up: EUR 225 million investments. • UPMOtepää plywood mill expansion • UPMKaukas and UPMKymi (second investment) pulp mill expansions • UPMRaflatac label stock factory expansion in Poland (second investment) In Uruguay, UPM started discussions with the Government of Uruguay regarding the development of logistics infrastructure in the country. Rail­ road and road connections are a critical challenge for establishing a large scale industrial operation in the inland and connecting it to a deep sea port.

Business portfolio development and value creation UPM aims to increase long-term shareholder value by increasing the value of each business and by developing the business portfolio, organically or potentially through mergers and acquisitions. UPM’s responsible operations and value chain lay the foundation for identifying opportunities and avoiding and mitigating potential risks. Developing each business • Driving profitability, growth and cash flow • Commercial strategies, focused growth investments, continuous improvement programmes Developing the business portfolio • Increasing the share of businesses with strong long-term fundamentals for profitability and growth • Businesses with a sustainable competitive advantage • Growth investments, synergistic M&A Portfolio changes are possible if it would be the best way to increase long-term shareholder value Ability to take action: strong balance sheet mitigates risks and presents strategic opportunities

New sources for sustainable growth and competitiveness UPM is developing new businesses based on its extensive know-how and strong position in the forest biomass sourcing and processing value chain. Ecodesign represents business opportunities with large target markets and high added value. BIOFUELS • Advanced renewable diesel suitable for all diesel engines and renewable naphtha that can be used as a gasoline component BIOCOMPOSITES • Renewable materials to replace oil-based materials e.g. in injection moulding BIOCHEMICALS • Sustainable and competitive wood-based biochemicals with the focus on chemical building blocks, lignin products, biofibrils and biomedical products Product, service and business model development in the current businesses is also an important source of competitive advantage and growth. All UPM businesses aim to increase the value added for customers through product and service development.

CONTENTS

10

11

UPM Annual Report 2016

UPM Annual Report 2016