UPM Annual Report 2016

Strategy

In brief

Businesses

Stakeholders

Governance

Accounts

Changing operating environment The global megatrends represent many long-term opportunities and challenges for UPM towards 2030 and beyond. They are also driving demand for sustainable solutions and responsible business practices.

UPM’S BIOFORE STRATEGY FITS WELL INTO THE CHANGING WORLD 1 PERFORMANCE PM’s Biofore strategy fits well into the changing world

1

PERFORMANCE

UPM’s continuous improvement programmes for variable and fixed costs and working capital Efficient use of renewable materials and energy, recycling of production waste UPM Code of Conduct, compliance, transparency UPM Supplier and Third Party Code, responsible sourcing UPM One Safety, continuous improvement of health and safety Human capital development, employee engagement and capabilities More with Biofore, industry leading environmental performance, Best Available Techniques (BAT) UPM’s global biodiversity programme, sustainable forest management

MEGATRENDS

EXPRESSIONS

OPPORTUNITIES FOR UPM

CHALLENGES FOR UPM

UPM Pulp | UPM Biofuels | UPM Raflatac | UPM Specialty Papers | UPM Plywood | UPM Timber | UPM Biochemicals | UPM Biocomposites Growing demand for renewable materials and renewable energy Growing demand for safe and sustainable products New business opportunities with ecodesign Resource efficiency and circular economy offer competitive advantage Cost efficient and responsible supply chains Healthy forests and safeguarded wood availability UPM Pulp | UPM Raflatac | UPM Specialty Papers | UPM Plywood Online shopping drives demand growth for labelling, packaging and pulp Different demand trends for different paper end uses and geographical areas UPM’s paper production platform provides continuous optimisation opportunities Increasing efficiency, productivity and change agility Industrial internet, big data, automation UPM Biofuels | UPM Energy | UPM Biochemicals | UPM Biocomposites | UPM Pulp | UPM Plywood | UPM Timber Sustainability offers competitive advantage and growth opportunities Preferential treatment of low-emission and renewable energy Growing demand for safe and sustainable products New business opportunities with ecodesign Forests as carbon sinks Increased forest growth in Northern Europe

POPULATION GROWTH, URBANISATION AND DEMOGRAPHIC CHANGE

Fit of UPM’s product mix and geographical presence to future growth outlook Unpredictable raw material costs and availability Competition for renewable raw materials Unpredictable regulation and subsidies may distort markets

Global consumption growth Growing middle class in emerging markets Higher living standards Changing consumer behaviour and preferences Resource scarcity, competition for natural resources Deforestation

UPM’s water strategy, production in water abundant areas UPM’s Biofore Share and Care programme, local commitment Robust and safe IT systems

2 GROWTH

2

GROWTH

UPM Paper ENA Declining graphic paper consumption Fit of UPM’s product mix and geographical presence to future growth outlook Changing needs for skills and competencies Cyber security

DIGITALISATION

Changing consumer behaviour and preferences Growing e-commerce Changing work Disruptive business models and technologies

Focused growth investments in UPM Pulp, UPM Biofuels, UPM Raflatac, UPM Specialty Papers, UPM Plywood, UPM Energy Commercialise new business in biofuels (outside food value chain), biocomposites and biochemicals Focus on cost competitive, low-emission energy sources Talent attraction

3 PORTFOLIO

3

PORTFOLIO

Business portfolio development organically and potentially through M&A Businesses with best development and/or value potential for UPM Businesses with sustainable competitive advantage Disciplined capital allocation

CLIMATE CHANGE

Unpredictable regulation and subsidies may distort markets Cost for greenhouse gas emissions Political instability Increasingly common and more severe storms, floods, draughts and natural disasters Unpredictable wood harvesting conditions

Policies to mitigate climate change Replacing fossil energy and oil-based materials Direct and indirect impacts of climate change

4 INNOVATION

4

INNOVATION

Product stewardship Develop new businesses in biofuels (outside food value chain), biocomposites and biochemicals Value added product and service development in current businesses Continuous improvement in cost competitiveness and efficiency Expertise in renewable materials and energy

RESPONSIBILITY AND COMPLIANCE

Reputation and financial risks in case of non-compliance Unpredictable regulation and subsidies may distort markets Trade barriers, protectionism, sanctions

Responsibility and sustainability offer competitive advantage and growth opportunities Regulation may drive markets for sustainable products

Increasing regulation, subsidies Requirements for transparency Global trade and businesses – local impacts Focus on human rights, environment, biodiversity

New business opportunities with ecodesign Transparency as competitive advantage Cost efficient and responsible supply chains Engaged and diverse workforce

Recycling and reuse of production waste Collaboration and partnerships in R&D Intellectual property rights

CONTENTS

UPM Annual Report 2016 20

21 UPM Annual Report 2016