UPM Annual Report 2016

Stakeholders

In brief

Strategy

Businesses

Governance

Accounts

UPM offers a wide range of renewable and recyclable products to be further processed into a variety of useful everyday products, and also provides services that meet the needs of a versatile range of customers. Continuous dialogue and collaboration with customers

IMPORTANT CORPORATE RESPONSIBILITY TOPICS Safety, forest certification, sustainable forestry, environmental performance of mills, water use and resource efficiency

MAJOR CHANGES IN CUSTOMER INDUSTRIES

BUSINESS AREA

PRODUCT RANGE

CUSTOMER INDUSTRIES

COLLABORATION ACTIONS IN 2016

UPM PULP

• Joint development projects with customers in technical and sustainability issues • Sustainability services and training for customers • Launch of Pulp School • Improvement of supply chain efficiency • Strengthening sales support • Food safety certification to cover all pulp mills • Delivery volumes increased year-on-year • Launch of UPM BioVerno renewable diesel in marine fleet in the Netherlands • Ensuring product functionality by comprehensive motor and fleet testing • Further focus on strategic markets and market-specific weighting • Customer categorisation and customer-specific account plans • Optimisation of raw material quality and usage • Delivery accuracy • Excellent service throughout the whole supply chain

• Growth of tissue and packaging board production • Continued decline of printing and writing paper industry in mature markets

Softwood, birch and eucalyptus pulp

Tissue, specialty, graphic papers and packaging

UPM BIOFUELS

Wood-based renewable diesel and naphtha for transport

Fuel distributors, transportation, oil and petrochemicals industry

• Global increase of advanced biofuel volumes and demand • Waste- and residue-based biofuels are favoured by both customers and legislation

Reducing greenhouse gas emissions and tailpipe emissions, biofuels- specific sustainability certification, social and traceability criteria in targets set by the EU Renewable Energy Directive

UPM TIMBER

Standard and special sawn timber

Joinery, packaging, distribution and construction industries

• Growing importance of East Europe as a production area • Instability and financial challenges in Egyptian market

Chain of custody, origin of wood and forest certification

UPM ENERGY

Electricity and related services

Nordic market, mainly industrial consumers

• Internal service portfolio enhanced

Low-emission electricity production, active grid balance management through load management and balancing power, fish migration Product safety, lifecycle analysis, ecodesign and bio-based components, waste management, recyclability, responsible sourcing and forest certification

• Structural changes in the Nordic electricity market • Increased volatility of electricity market through subsidised weather-dependent production capacity

UPM’s businesses vary in the products and services they offer. Each business has its own customer management process and way of interacting with customers. A compre­ hensive understanding of the markets, knowledge of end uses and an appreciation of customers’ needs form the basis of UPM’s customer relationship management. UPM’s target is to provide customers with solutions that improve customers’ business processes, with a special focus on creating mutual benefits with increased efficiency. Product stewardship, sustainable rawmaterials and industry-leading environmental performance are also at the centre of UPM’s customer offering. UPM’s interaction with customers is based on continu­ ous dialogue and regular customer satisfaction surveys. In addition to a continuous working dialogue, UPM is engaged in various development projects with customers. Many of the projects are related to product development, supply chain efficiency and optimisation, as well as the co-planning of activities. Customer satisfaction is measured regularly in most businesses through customer satisfaction surveys. Based on various business customer satisfaction surveys, the overall total satisfaction with UPM as a supplier is 86% (75%). The result is not comparable with the previous year’s result due to changes in the survey methods. The surveys act as a tool for further development, and bring an important customer dimension to performance management. Interest in responsibility Based on the dialogue and surveys, UPM’s customers take an interest in the company’s responsibility performance and the sustainability of its operations. Customers value UPM’s comprehensive product range, reliability and excellent environmental performance. Product safety, forest certification and chains of custody, resource efficiency, safety performance and the supply chain are among the most important topics. Customers are increasingly interested in compliance with regulations, the UPMCode of Conduct and social responsibility topics such as working conditions. The significance of long-term financial performance and profitability of the supplier have also increased. UPM offers product declarations and environmental data for most products as a tool to provide customers with information on the sustainability of products and the supply chain.

UPM RAFLATAC

Self-adhesive paper and film label stock

Label printers, packers, brand owners in durables, tyres, A4, food, beverage, personal care, pharmaceutical, retail and logistics segments

• New scalable global operating model enabling further growth • Expanding customer reach through increased distribution and sales & service coverage • Investment in significant capacity increase in Poland operating platform • Joint projects with customers and brand owners • Sustainability and product safety solutions

• E-commerce increasing label use for packaging & logistics • Increase in automated product labelling & identification • Retailer & distributor network development • Adhesive technologies for demanding applications • Legislation: Increase in mandatory product information Labelling materials: • Growth in personal care products • Increased share of e-commerce • Increase in automated product labelling and identification • Retailer and distributor network development Office papers: • Quality upgrade and lower price in cut-size business

UPM SPECIALTY PAPERS

Product safety, forest certification, origin of wood and resource efficiency, supplier audits at mills

Labelling and packaging materials, office papers, fine papers

Converters, distributors, retailers, OEMs (original equipment manufacturer), printers, publishers

• Launch of UPM Changshu PM3 labelling materials and new value-added products and services

• Joint development projects with customers • Enhancing sustainability message further • Customer focus throughout the organisation

UPM PAPER ENA

Magazine papers, newsprint and fine papers for various end uses

Newspaper and magazine publishers, printers, cataloguers, retailers, merchants and converters

• Launch of New Future product family and Responsible Fibre trademark (p. 35) • Joint product and business development with customers • Development of service offering

• Digitalisation • Consolidation • Eco-tax in France

Safety, forest certification, environmental performance, supplier audits at mills, ecolabels, resource efficiency and financial stability as a supplier

• Improved business interaction with customers • Further development of digital service channel Customer Online and its eOrder module

UPM PLYWOOD

Forest certification, chain of custody, product safety and resource efficiency

Plywood and veneer products, thermoformable wood material

Construction, vehicle flooring, LNG shipbuilding and parquet industries as well as furniture and other manufacturing industries

• Continuation of the ongoing work to improve supply chain performance and service • Introduction of value-adding services to customer offering • Continuous customer and contract management

• Increased need for services, stocks and short lead times • Requirement for forest certifications has increased within on-site construction end use • More customer-driven specifications among industrial end users limiting supplier’s possibility to differentiate with a product

WOOD SOURCING AND FORESTRY

Sustainable forestry, forest certification, income and employ­ ment for people living in rural areas, employee relationship with private entrepreneurs

Wood and wood-based biomass (logs, pulpwood, chips, forest residues etc.),

• Focus sourcing to areas next to the mills • Sharpen the way of serving forest owners • Development of digital solutions to improve customer service

• Increasing wood demand and competition due to pulp mill investments in Finland

All UPM businesses using wood or wood-based biomass, forest owners

full forestry service package offering

Read more on compliance on p. 14, UPM BioVerno renewable diesel on p. 26, UPM Raflatac’s

Vanish labels on p. 31 and lifecycle assessment on p. 57, Responsible Fibre trademark on p. 35, responsible sourcing on p. 59 and UPM’s approach to circular economy on p. 68.

CONTENTS

UPM Annual Report 2016 52

UPM Annual Report 2016 53