UPM Annual Report 2016

Businesses

In brief

Strategy

Stakeholders

Governance

Accounts

UPM Plywood

INVESTMENT TO EFFICIENCY Investment in the Otepää mill is improving production processes and material efficiency in many ways. The new, highly automated and well- protected production lines improve work efficiency and ergonomics as well as reduce the risk of work-related injuries and illnesses. Production capacity has increased by approximately 90%. The old boiler that was partially reliant on oil burning has been replaced with a new biomass boiler. The new boiler uses plywood production by-products such as bark, chips and dust as fuel, thus improving material efficiency. Switching from oil to renewable energy reduces fossil CO 2 emissions by 85% and lowers energy costs. As a result of the expansion, the team at the mill grew by one third as approximately 40 new employees were hired. The project has also provided work for several local companies over the past year and a half. Out of over 100 suppliers involved in the project, approximately 80% of contracts have been concluded with local companies.

Growth to meet customer demand

Top performance continued Profitability increased due to lower costs, partly supported by favourable currency impact, and higher delivery volumes. The Finnish birch mill competitiveness improvement programme proceeded, enabling increased production and lower unit costs. UPMPlywood completed the expansion of the UPMOtepää mill in Estonia in the fourth quarter. The expansion increases the mill’s production capacity to 90,000 cubic metres per year. The new biomass boiler enhances the mill’s material efficiency and reduces fossil carbon dioxide emissions by 85%. The investment enhances value as it responds to growing demand for high-quality birch plywood products in key customer markets. The market environment improved gradually during the first half of 2016 in Europe, and demand is estimated to have increased since the previous year. The impact of low-priced imports in the beginning of the year eased in the second quarter. Demand picked up, particularly in birch plywood-related industrial applications, but also to some extent in construction-related end-use segments. Deliveries to demanding industrial end-use applications increased: vehicle floors to trailer manufacturers and insulation material for LNG carriers. Activity in the building and construction industry improved with good results. Market prices decreased at the beginning of the year, but increased slightly during the second half of the year. Building and construction In building and construction, UPMPlywood is the leading supplier in the high-end segments in Europe thanks to an established distribution network. After years of low construction activity in Europe a gradual recovery continued in 2016. UPMPlywood seeks further growth by strengthening distribution in selected emerging markets. Vehicle flooring In transportation equipment, UPMPlywood provides expertise for customers’ product and production development, introducing both economic and environmental benefits. Demand growth for trailers is driven by economic activity and a replacement need created after the financial crisis in 2008. Growing e-commerce volumes drives growth in light vehicles by transferring the delivery flows from terminals directly to consumers and thus increasing parcel deliveries. UPMPlywood seeks growth by expanding to newmarkets and end-use segments. LNG carriers UPMPlywood has seen solid growth in the LNG (liquefied natural gas) segment in past years. WISA birch plywood is ideal material in LNG vessels due to its strength and stability at extremely low temperatures. UPMPlywood provides on-time deliveries of certified quality through long- term contracts. UPMPlywood secures its leading position and seeks growth through extending its offering into related applications with same technology. Plywood from sustainably managed forests Forest certificates guarantee that the wood rawmaterial is from sustainably managed forests with legal logging operations. All wood rawmaterial is used either in plywood production, as rawmaterial to other products or in energy generation. Plywood is increasingly used because it is a cost-effective material, a renewable resource and carbon storing product. Integrated plywood and renewable energy production enhances material efficiency and reduces fossil fuel emissions at mill sites. Biomass boilers produce most mills’ thermal energy using the production by-products as fuel. In addition, plywood manufacturing consumes less energy compared to e.g. aluminium, plastic or steel.

• Moderately labour and capital intensive industry • Engaged high performing people • Community engagement • Wood from certified sources with full traceability

CAPITALS

OUR DIRECTION • Profitable growth through superior customer experience and operational excellence • Strengthen market position in selected businesses by increasing value and service offering OUR STRENGTHS • Customer insight and superior customer service • Reliable supplier with consistent high quality • Leading supplier in demanding end-use segments • Strongest brand in the market — WISA ® GROWTH DRIVERS • Building and construction activity in Europe • Road transportation in Europe • LNG carrier and terminal investments globally • Growing e-commerce

UPM PLYWOOD VALUE CREATED Thorough customer insight Professional technical services, supply chain services High quality, reliable supplier Leading supplier in demanding end uses Strong brand Renewable energy production

Read more: www.wisaplywood.com, www.upmbiofore.com

• Construction • Vehicle flooring • LNG shipbuilding • Parquet • Other industrial manufacturing

END USES

KEY FIGURES Sales, EURm

2016 2015

• Employment • Vitality of local communities • Work safety • Safe and certified products • Carbon storing products • Renewable energy • Low emissions

444

439

SOCIAL IMPACT

58

Comparable EBIT, EURm

55

259 22.6

Capital employed (average), EURm

263 20.9

Comparable ROCE, % Personnel on 31 Dec.

2,469

2,469

OUTCOMES

ENVIRONMENTAL IMPACT

• ROCE • Growth

ECONOMIC IMPACT

CONTENTS

36

37

UPM Annual Report 2016

UPM Annual Report 2016