UPM Annual Report 2017

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Businesses

In brief

Strategy

Stakeholders

Governance

Accounts

BONDING BREAKTHROUGH UPM Plywood’s new WISA BioBond, lignin-based gluing technology for use in plywood production is the most significant innovation in plywood bonding in five decades. In the new technology, 50% of the fossil-based phenol has been replaced with bio-based lignin obtained as a residue of pulp production. The goal is to increase this amount to almost 100% over the coming years. The technical performance of the plywood produced using the new gluing technology is similar to that of the WISA products produced using traditional methods. Customers will gradually be able to utilise this ever- increasing sustainability of WISA plywood products in their own business as UPM Plywood plans to introduce the technology into all of its plywood mills.

UPM Plywood

Efficiency made easy

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 • End-use, market and customer insight and superior customer service • Leading reliability of supply with consistent high quality • Leading supplier in demanding end-use segments • Strongest brand in the market – WISA ® • Operational excellence through competent personnel GROWTH DRIVERS • Building and construction activity in Europe • Road transportation in Europe • LNG carrier and terminal investments globally • Light vehicle transportation in urban areas through e-commerce

Top performance continued The market environment was favourable in Europe and demand increased from the previous year. Spruce plywood demand strengthened due to further improvement in the building and construction industry. Demand in birch plywood-related industrial applications such as vehicle floors and LNG carrier insulation material was good. The favourable economic environment caused input cost inflation, to which UPMPlywood responded by implementing sales price increases. The completion of the UPMOtepää mill expansion in Estonia at the end of 2016 supported growth in deliveries of 5% in 2017. Following successful growth investments and consistent improvement in profitability in past years, UPMPlywood decided to expand its Chudovo plywood mill capacity in Russia. The EUR 50 million investment will increase the mill’s birch plywood production capacity by 45,000 to 155,000 cubic metres while also broadening the mill’s product portfolio. The expansion of cost competitive capacity at the Chudovo mill is another important step in executing UPM Plywood’s strategy to strengthen its position in priority end-use segments. The project is estimated to be completed by the end of 2019. The completion of the peeling investment at the UPMKalso veneer mill improved quality and production efficiency in spruce veneer production. Building and construction UPMPlywood is the leading supplier in the high-end and mid-range segments in Europe thanks to an established distribution and customer service network. After years of low construction activity in Europe, the recovery continued in 2017. New innovative and sustainable solutions are further strengthening UPMPlywood’s offering for construction applications. Vehicle flooring In transportation equipment, UPMPlywood provides expertise and solutions for customers’ product and process development. Fleet replacement need is levelling off while improving economic activity is supporting trailer demand in Europe. Growing e-commerce volumes are driving growth in light vehicles by increasing parcel deliveries from terminals to consumers and thus increasing demand for flexible deliveries in urban areas. 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 recent years. WISA birch plywood is ideal material for insulation in LNG vessels due to its strength and stability at extremely low temperatures. UPM Plywood provides on-time deliveries of certified quality through long-term partnerships. UPMPlywood secures its leading position and seeks growth through extending its offering into related applications with same technology. Unique innovations in 2017 UPMPlywood started using a new sustainable lignin-basedWISA BioBond gluing technology in plywood manufacturing (read more on the next page). UPMPlywood introduced a new fire-retardant structural plywood for building and construction end uses. The fire-retardant treatment saves time, material and costs when applied on panels during manufacturing. Plywood from sustainably managed forests Forest certificates guarantee that the wood rawmaterial comes 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-efficient material, a renewable resource and carbon storing product.