UPM Annual Report 2016

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Businesses

In brief

Strategy

Stakeholders

Governance

Accounts

EURm UPM’s development expenditure

150

120

Innovation and R&D

Cost savings New services New business models Improved products New products Go-to-market concept Cost savings New products New technologies Application development Commercialisation

EURm UPM’s development expenditure

MATURE

150

120

12 13 14 15 16

GROWTH

■ Developing businesses* ) ■ Mature businesses Of operating cash flow

Focus on circular economy

NEW

* ) Includes negative operating cash flow

INNOVATION NEEDS DIFFER IN UPM’S BUSINESSES

12 13 14 15 16

■ Developing businesses* ) ■ Mature businesses Of operating cash flow

* ) Includes negative operating cash flow

TOWARDS A CLOSED CYCLE The China More with Biofore research programme seeks to improve the environmental performance and energy efficiency of mills through new technologies. UPM Changshu paper mill is a pilot in a 2-3-year programme to improve the resource efficiency including water and energy use at the mill. The goal is to reduce emissions in China, but at the same time UPM is looking for new solutions that can be applied at other mills around the world. The programme also complements the strict environmental policy implemented by the Chinese authorities. There are two separate resource projects going on at Changshu. The goal of the first project is to reduce the water consumption of the three paper machines. Another target for development is to improve the efficiency of energy use by reducing carbon dioxide and particle emissions from the power boilers. In the long term, the aim is to move towards a closed-cycle mill. Reducing fresh water usage also decreases emissions. UPM will optimise water use by increasing water recycling in internal mill processes and only using clean water if absolutely necessary. The ultimate goal is that the water exiting the mill is clean and has no environmental impact. All in all, the programme offers excellent support for UPM’s long-term responsibility targets. OUR DIRECTION • Innovations are at the forefront in the creation and development of new products that can be used to replace non-renewable materials with renewable, recyclable and low-impact alternatives and provide resource efficient alternatives for the future. • The aim of UPM’s R&D programmes and business development is to create new technologies and products, provide support to and ensure the competitiveness of its businesses. • By co-operating with selected value chain partners UPM aims to increase its speed, agility and effectiveness.

In 2016, UPM spent EUR 46 million (63 million) on research and development work equating to 2.7% (5.3%) of UPM’s operating cash flow. The focus was on new technologies and developing businesses. On top of the direct R&D expenditure of approximately EUR 40 million (37 million), the figures include negative operating cash flow and capital expenditure in developing businesses. UPMhas a global network of research centres to support both new and existing businesses and their development goals. Research projects Circular economy is an integral part of UPM’s business. Resource efficiency is at the core of the Biofore strategy. Product stewardship and ecodesign approach covers the entire value chain from the design stage to end products and their reuse. UPM’s side stream efficiency research (SEFF) is looking for solutions to better utilise the side streams of integrated pulp and paper mills; sludge, ash, green liquor dregs, various rejects and waste heat. The aim is to reduce costs and increase the value of side streams by finding new business opportunities with partners. Fertiliser development and nutrient recirculation is one of the possible circular economy solutions. UPM established a joint project with fertiliser and crop nutrition expert Yara to develop nutrient recycling. The project concentrates on the possibilities for the agricultural reuse of nutrients retrieved from the sludge originating from the pulp and paper mill’s effluent treatment plants and the ash from the incineration process. Other studies relate among others to ash product development for con struction applications and new ways to reuse green liquor dregs. The results are also used in UPM’s Zero SolidWaste programme. The initiative develops smart and sustainable solutions, in which excess materials circulate and generate value. UPM’s fibre ecosystem project aims to study new fibre processes for enhanced product properties. The new product possibilities address global megatrends and sustainability demands. The research is done in co-operation with customers, partners and research organisations along various value chains. Wide-scale collaboration UPM is one of the founding members of the industrial consortium, part of the European Joint Undertaking on Bio-based Industries (BBI). This Public Private Partnership (PPP) aims to trigger investments and create a compet itive market for bio-based products and materials. For UPM, the PPP is an important funding element for speeding up the implementation of future investments. UPM is a shareholder in the Finnish CLIC Innovation Oy, which focuses on bioeconomy and cleantech research. The cluster’s research programmes focus on bioeconomy as well as energy and environmental research, thus supporting UPM’s internal R&D activities. In 2016, UPM received approximately EUR 1.0 million (1.4 million) from Tekes (the Finnish Funding Agency for Innovation) for its research projects. These projects were carried out in co-operation with research institutes, universities and other companies. UPMworks together with a wide network of universities, research insti tutes, technology suppliers and startups to develop new solutions and get to the market faster, especially in new businesses.

UPM actively protects inventions and brands with intellec tual property rights. UPMmanages and uses its patents, trade marks and other intellectual property rights throughout the world. Protected innovations and high level risk management is an integral part of the business model throughout UPM. UPM is also actively seeking partners and licensing opportunities to develop new technologies and solutions for its customers. UPM leaves approximately 350 patent applications annually. For example in Finland, UPMwas granted over 50 patents in 2016, more than any other Finnish company. Biocomposites create sustainable value UPMBiocomposites develops, manufactures and sells high quality composite products for a wide range of consumer and industrial applications. UPMProFi Deck range is one of the leading composite decking brands in Europe. Through patented recycling technology, UPMBiocomposites recovers the cellulose fibres and polymers found in label material waste and gives them a second life. Each square metre of UPMProFi Deck contains 10 kg of label waste. UPMFormi is the engineered range of pure cellulose and virgin polymer compounds suitable for various applications from furniture to consumer electronics. Its carbon footprint is up to 50% lower compared to traditional plastics. Biochemicals offer an alternative to fossil-based solutions UPMBiochemicals offers and develops innovative, sustainable and competitive wood-based biochemicals. It is currently focusing on four product categories: chemical building blocks, lignin products, biofibrils and biomedical products. For example, bio-based chemical building blocks can be used to replace oil-based chemicals in plastic production. Wood- based lignin can for instance be used to manufacture bio-based resins to replace fossil-based resins. Biofibrils are cellulose-based micro and nanofibril products that can be used for shaping and reinforcing different materials. They can also be used in new biomedical applications. GrowDex® is a proprietary hydrogel for cell culturing in medical research and other applications. UPMBiochemicals has already commercialised the first lignin applications and biomedical products. It is actively developing and testing industrial applications with its partners in order to create large scale industrial concepts. UPM’s ValChem project, started in 2015 and funded by the European Union, proceeded in 2016 as planned. The aim of the project is to demonstrate the technical and economic viability of an integrated biochemical process, covering the whole value chain fromwood rawmaterials to a selected platform-chemical and lignin-based performance chemicals.