UPM Annual Report 2016

Businesses

In brief

Strategy

Stakeholders

Governance

Accounts

UPM Paper Asia was renamed as UPM Specialty Papers as of 1 October 2016.

UPM Specialty Papers Growth focus on attractive segments

EXCELLENT SAFETY RESULTS UPM Changshu’s lost-time accident frequency was 0.4 last year. The year was also exceptionally good for the Jämsä River and Tervasaari mills, which managed to halve all industrial accidents compared to the previous year. Work safety culture has been continuously developed in Finland and China. At UPM Changshu mill, a safety committee leads all safety practices. Working groups have been established under the safety committee to think about how the safety plans are implemented in practice. The managers share the best practices with the whole mill during safety talks. All meetings start with discussions about safety issues, and the mill’s own weekly newsletter covers safety on a regular basis. UPM Tervasaari mill manufactures the same labelling materials as UPM Changshu, and the mills have carried out a working culture exchange and cross-auditing. The collaboration has been productive and fruitful and the personnel’s feedback excellent.

Strengthened positioning UPM Specialty Papers has a solid foothold in Europe with its label and packaging materials. The new specialty paper machine at UPMChangshu, China has strengthened UPM’s labelling materials positioning in the Asia- Pacific region. In the Americas, UPM Specialty Papers is establishing a stronger local presence by reinforcing its sales force. Fine papers are an integral part of the business in Asia. UPM Specialty Papers is one of the largest office paper suppliers in the Asia Pacific region. The new specialty paper machine in Changshu enables additional growth in high- quality office papers, a segment in which UPMhas been restricted by capacity. Regular commercial production started in 2016 at the new production line in Changshu. The investment further strengthens UPM Specialty Papers’ unique position on the Asian market. Strong profitability improvement UPM Specialty Papers’ profitability improved significantly, mainly due to lower costs and higher delivery volumes, more than offsetting a less favourable sales mix and lower paper prices. Compared to the previous year, net change in currencies, including hedges, had a positive impact on profitability. Production ramp-up of the new production line had yet a minor impact on profitability in 2016. Accelerating growth in value-added products The new production line in Changshu accelerates growth through shorter lead times, improved local cost efficiency and enhanced global market coverage of labelling materials. The new line provides an excellent platform for strengthening partnerships with customers through improved capability to provide a full range of services and new products in Asia Pacific. The line will also improve the mill’s energy efficiency. The new production line is capable of producing a wide range of products. In 2016, production of labelling materials increased gradually. The plan for the UPMChangshu mill site is to develop the more value-added specialty product segments, meanwhile allowing more selective approach in slow growth segments where competition is intense. Production and product portfolio optimisation is expected to support profitability over time. The new production line will also improve production flexibility for the European and North American markets. Product safety strengthened Product safety is a key requirement for the customers. UPM is committed to only sourcing rawmaterials from suppliers who demonstrate high standards of responsibility. UPMhas been using its own Restricted Chemical Substance List which our suppliers must adhere to and thereby guarantees that none of the substances specified are used in the production processes. UPMpaper is safe to use throughout its entire product lifecycle, allowing direct contact of dry and non-fatty food with papers granted a food contact certificate. UPMpapers are produced to high environmental standards from raw material, which is responsibly sourced using sustainable forest management practices. All products are recyclable.

• Capital intensive process industry • Engaged high performing people • Community engagement • Responsible sourcing • Chemical pulp with full traceability CAPITALS

OUR DIRECTION • In labelling materials, growth to maintain global leadership positioning through competitive production and strengthened partnerships with customers • In office papers, growth as one of the largest office paper suppliers in Asia • Widen product offering in specialities and through new product development, seek opportunities in existing and new end-uses OUR STRENGTHS • Strong market position, competitive products and world class assets • Extensive experience in high quality release liners and face papers • Office papers in Asia Pacific with extensive distribution network and strong brands in China • Reliable supplier with exceptional customer service globally • Recognised industry leader in sustainability and environmental excellence

UPM SPECIALTY PAPERS VALUE CREATED Cost-efficient production Reliable supplier Recognised leader in sustainability Extensive experience and insight in labelling materials Global market leader in labelling materials

Read more: www.upmpaper.com www.upm.com/responsibility

Leading office paper brands in China Extensive sales network in Asia Pacific

• Label stock manufacturers, commercial siliconisers • Converters • Merchants and distributors • Printers and publishers

CUSTOMERS

GROWTH DRIVERS Labelling materials • Private consumption • Aging population • Urban lifestyle • Higher standard of living

• Safe and certified products • Work safety • Employment and career opportunities • High ethics and compliance with global norms

SOCIAL IMPACT

OUTCOMES

• Shift away from rigid packaging to flexible packaging • Growth in automated product and logistics labelling • Development of fastening systems

• Recyclable products • Low emissions

ENVIRONMENTAL IMPACT

• ROCE • Growth

ECONOMIC IMPACT

Office papers • Economic growth • Increased business services • Urbanisation • Establishment of new enterprises

KEY FIGURES Sales, EURm

2016 2015

1,273

1,168

123

Comparable EBIT, EURm

55

1,012

Capital employed (average), EURm

1,012

12.1

Comparable ROCE, % Personnel on 31 Dec.

5.4

1,984

1,738

CONTENTS

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UPM Annual Report 2016

UPM Annual Report 2016