UPM Annual Report 2017

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Businesses

In brief

Strategy

Stakeholders

Governance

Accounts

THE FUTURE FORMULA FOR SUSTAINABLE LABELING UPM Raflatac has developed a Forest Positive concept that promotes sustainable label solutions. Products marketed under this umbrella are carbon positive and resource-optimised, and their wood raw material is 100% derived from FSC or PEFC certified sustainably managed forests. In 2017, UPM Raflatac launched RAFNXT+ as the first product range under the Forest Positive concept. RAFNXT+ is up to 20% more carbon positive than standard paper labels. The sustainably managed forests act as carbon sinks and can absorb up to double the amount of carbon dioxide emitted during the product lifecycle. RAFNXT+ products are thinner than standard labels, so they use less energy and water and generate less waste during their lifetime. By choosing RAFNXT+ label converters and brand owners in areas such as food, retail and logistics can demonstrate their commitment to making sustainable choices.

Labeling a smarter future UPM Raflatac Performance driven by demand growth Global demand for self-adhesive label materials continued to grow. Demand growth remained stable in Europe and North America. Strong demand growth continued in Asia. UPMRaflatac was able to respond to the improved demand due to its globally competitive production platform and efficient distribution. New product launches and expanded market presence further supported the commercial success. Profitability improved mainly due to higher delivery volumes. Sales price increases were gradually implemented to mitigate the negative impact of input cost inflation. Fixed costs increased in response to the larger operating platform, partly relating to capability building for future growth. Expanding commercial footprint In August, UPMRaflatac acquired Texas-based Southwest Label Stock to expand its customer reach and improve its service offering through a wider high-quality product range. In January 2018, UPMRaflatac opened a new slitting and distribution terminal in Santiago, Chile. The new terminal allows UPMRaflatac to improve its service capabilities and offer an expanded product range in the Chilean market, particularly in the wine and craft beverage segments. Leveraging from scale Reliable high-volume supply is a competitive edge in the label stock business. UPMRaflatac commenced production at the new coating line at the Wroclaw, Poland, label stock factory ahead of schedule. The expansion further strengthens UPMRaflatac’s position in high-volume standard products for e-commerce and packaged food end-uses. Combining the latest technology with a low-cost location improves operational efficiency and cost competitiveness, and strengthens UPMRaflatac’s world-class operating platform. Innovative labeling solutions The capability to generate innovative and sustainable solutions drives growth in the label stock business. Ecodesigned solutions are important for reaching sustainability targets throughout the value chain. In 2017, UPMRaflatac launched several sustainably designed products in film and paper labels. Good examples of these are RAFNXT+ and RafBio products. Bio-based materials provide a sustainable alternative to fossil-based films for a wide variety of end uses. RafCycle®, an innovative recycling concept, was launched in China at the end of 2017 and has now 100 partners globally. UPMRaflatac’s close partnerships with label printers and brand owners are an elementary part of building brand and product appeal in end-use markets. Developments in adhesive technologies and product constructions enhance functional performance and provide growth opportunities. In April, UPMRaflatac decided to invest in a new special products production line in Tampere, Finland. The investment strengthens UPMRaflatac’s position in the high value-added labels market. The industry sustainability leader UPMRaflatac is well positioned to drive the key sustainability issues related to circular economy and product safety together with brand owners, converters and rawmaterial suppliers as well as other stakeholders. In 2017, UPMRaflatac started piloting the Biofore Site™ concept. It is a framework designed to advance the culture of sustainability in factories and terminals, and provide a platform for continuous improvement towards meeting UPM’s 2030 responsibility targets (page 17). Each location will engage its employees and build a roadmap to meet the local Biofore Site targets.

OUR DIRECTION • Profitable organic growth, potentially complemented with acquisitions • Widening product portfolio especially in high value-added products • Expanding customer reach through increased distribution, sales and service coverage OUR STRENGTHS • Global delivery network, accurate and efficient supply chain • Global scale in R&D, quality development and technical know-how • Modern, strategically located and efficiently scalable production assets • Industry leader in sustainability and product safety GROWTH DRIVERS • Private consumption • Urbanisation • Population growth • Higher standard of living • E-commerce • Legislation • Self-adhesive labelling technology gaining market share • Brands and product innovations