UPM Annual Report 2017

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Businesses Businesses

In brief

Strategy

Stakeholders

Governance

Accounts

TEN YEARS OF GROWTH 2017 marks the 10th anniversary of the Fray Bentos pulp mill, still considered one of the best in the world to this day. The mill has produced over 11 million tonnes of eucalyptus pulp for global markets. The economic impact of the mill is significant. It creates jobs, increases people’s purchase power and enhances the wellbeing of the surrounding community. Nearly 800 people, including UPM’s direct employees, suppliers and subcontractors, enter the mill site daily to work on different operations from production and maintenance to logistics. Uruguay has a large reserve of wood raw material and a well-trained and skilled workforce. UPM Fray Bentos uses approximately 4.5 million cubic metres of wood every year and generates approx. 8% of the Uruguayan energy supply. The mill generates bio-based energy and electricity, which is then sold to the national grid. UPM sponsored the establishment of the regional technological university in Fray Bentos, at which students can study mechatronics, renewable energy, transport and logistics. “In terms of GDP, the forest industry has emerged as the most important value chain for the national economy of Uruguay, and pulp has become the second most valuable export item. The forestry sector has flourished over the past decade, and its future prospects look promising,” sums up Alfonso Capurro, Senior Director of the Economic Department from CPA Ferrere consultancy.

UPM Biorefining Sustainable growth

OUR DIRECTION • In Pulp: Provide customers with direct access to the most versatile pulp range and advanced technical service. Maintain cost competitiveness through continuous operational improvement. Grow as a responsible and cost-efficient pulp supplier. • In Biofuels: Provide unique, sustainable, advanced biofuels in various markets and segments, achieve top performance, evaluate opportunities for scaling up biofuels business. • In Timber: Enhance profitability through efficient use of wood supply, integrated full-production and focused commercial strategy. A streamlined business model to secure position in chosen key markets and end-use segments. OUR STRENGTHS • Versatile range of sustainably produced pulp grades suitable for a wide range of end uses • Modern, efficient mills and business committed to growth • Responsibility integrated in all operations from wood sourcing to logistics • Established producer of advanced renewable diesel and naphtha • Competitive sawmills with skilled own global sales and logistics network • Synergistic supply chain of wood for sawn timber, pulp and renewable fuels GROWTH DRIVERS Pulp and timber • Demand growth of consumer goods • Population growth, increasing income levels • Growth of e-commerce • Urban lifestyle • Demographic change • Environmental consciousness • Decreasing supply of white recycled fibre Advanced biofuels • Climate change mitigation • Sustainability • Pressure to replace fossil fuels with renewables • Low carbon mobility • Pressure to reduce greenhouse gas and tailpipe emissions in transport • Increasing the EU’s self-sufficiency in energy

Strong performance improvement Profitability increased clearly due to higher pulp sales prices, pulp deliveries and increased operational efficiency. Production efficiency improved significantly at the Lappeenranta Biorefinery and market fundamentals remained favourable for the biofuels business. Delivery volumes and production efficiency in sawmill operations improved. Pulp market balance tightened due to persistent, strong demand in 2017. Supply was restricted due to delayed start-up of new capacity and large production outages in the industry. Chinese regulatory efforts to clean up the inflow of mixed imported recycled paper tightened the fibre market during the second half of the year. Pulp prices increased during the course of the year. In 2017, activity in the Finnish wood market increased as a result of expanded pulp production capacity and increasing sawn timber demand. New digital services for forest owners were launched during the year (read more on page 42). Focused growth investments deliver UPMPulp has been able to respond to growing demand from customers in tissue, speciality papers and packaging due to increased production capacity. Over recent years, UPMhas made focused investments to expand production at all four pulp mills. Total pulp production capacity has increased by nearly 600,000 tonnes since 2013 with investments of approximately EUR 400 million. Simultaneously, operational efficiency has improved at all mills. In 2017, investment was completed at the UPMKymi pulp mill and the maintenance cycle at the UPMFray Bentos mill was rescheduled. New pulp production records enabled growth in UPMpulp deliveries of 5%.