UPM Annual Report 2017

Stakeholders

In brief

Strategy

Businesses

Governance

Accounts

Value to customers globally

IMPORTANT CORPORATE RESPONSIBILITY TOPICS • Product safety • Forest certification, origin of wood, sustainable forestry • Environmental performance of pulp mills, water use • Resource efficiency • Reducing greenhouse gas emissions and tailpipe emissions • Biofuel-specific sustainability certification (ISCC and RSB) • Social and traceability criteria for targets set by the EU Renewable Energy Directive • Safety and product safety • Chain of custody, origin of wood, forest certification, sustainable forest management • Safety • Product safety, lifecycle analysis, ecodesign and bio-based components • Waste management • Recyclability • Responsible sourcing • Forest certification • Product safety • Forest certification, origin of wood • Responsible sourcing, supplier audits at the mills (social responsibility) • Resource efficiency • Safety culture • Supplier social responsibility and safety performance • Forest certification, ecolabels • Resource efficiency • Forest certification, chain of custody • Product safety • Resource efficiency • Sustainable forestry, forest certification • Income and employment for people living in rural areas, employment of entrepreneurs • Forest certification • Safety • Animal-free in-vitro medical research • Sustainable alternatives to fossil-based plastic materials • Recycling label production side streams • Low-emission electricity production • Active grid balance management • Fish migration

MAJOR CHANGES IN CUSTOMER INDUSTRIES

BUSINESS

PRODUCT RANGE Softwood, birch and eucalyptus pulp

CUSTOMER INDUSTRIES

COLLABORATION ACTIONS IN 2017

Tissue, specialty, graphic papers and packaging

• Joint development projects with customers and suppliers on technical and sustainability issues • Sustainability services and training • UPM Pulp Schools • Improvement of supply chain efficiency • Strengthening of sales support • Opening the bioplastics sector sales of UPM BioVerno naphtha in Europe • Joint development projects with customers • Ensuring product functionality through comprehensive motor and fleet testing • Strengthening sales and technical product support • Customer focus throughout the organisation • 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 supply chain

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

UPM PULP

UPM offers a wide range of sustainable and safe products for everyday use. Products are made of renewable and biodegradable materials and are recyclable.

• Global increase of advanced biofuel volumes and demand • Waste- and residue-based biofuels are favoured by both customers and legislation • Growing petrochemical sector for renewable naphtha as feedstock

Wood-based renewable diesel for transport and renewable naphtha for transport and for bioplastics

Fuel distributors, transportation, oil and petrochemicals industry

UPM BIOFUELS

Standard and special sawn timber

Joinery, packaging, furniture, distribution and construction industries

• Growing importance of Eastern Europe as a production area • Instability and financial challenges in MENA markets

UPM TIMBER

UPM’s businesses vary in the products and services that 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. Opportunities of bioeconomy Trends in the consumer marketplace have a significant impact on the demand for forest industry products. As the population grows, and consumption along with it, the use of renewable rawmaterials and recycling must be increased. More renewable rawmaterials will have to be used in production to replace fossil materials and other non-renew­ able natural resources. Biomass and biomaterials will play an increasingly important role in the circular economy and the innovations related to it. UPM actively develops solutions based on the circular economy model, in which materials and value circulate and added value is generated by services and smart operations. The target is to provide customers with solutions that improve customers’ business processes, with a special focus on creating mutual benefits and investigating new business opportunities. Continuous dialogue and collaboration UPM’s interaction with customers is based on continuous dialogue and regular customer satisfaction surveys. In addition to a continuous working dialogue, UPM is engaged in various development projects with customers. Many of these projects are linked to product development and to 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 results from various business customer satisfaction surveys, the overall total satisfaction with UPM as a supplier is 86% (86%). These surveys act as a tool for further development, and bring an important customer dimension. Customers value UPM’s comprehensive high-quality product range, reliability and excellent environmental performance. Product safety, forest certification, chains of custody, resource efficiency and recyclability are among the most important factors for customers. 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.

Electricity and related services

Nordic market and industrial consumers

• Enhanced service portfolio

• Structural changes in the Nordic electricity market • Increased volatility of electricity market through subsidised weather-dependent production capacity • Mitigation of climate change through decarbonisation • E-commerce increasing label use for packaging and logistics • Increase in automated product labelling and identification • Retailer and distributor network development • Adhesive technologies for demanding differentiated 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 Office papers: • Needs for more documentation, and increase in the number of personal printers • Quality upgrade, specialised business services • Increased need for services, stocks and short lead time • Requirement for forest certifications has increased within on-site construction end use • More customer-driven specifications among industrial end users limiting supplier’s opportunity to differentiate with a product • Increasing wood demand and competition due to pulp mill investments in Finland • Strong preference for renewable and sustainable raw materials • New technologies available • Increasing prices of fossil-based raw materials. • Trend to find renewable alternatives to fossil-based polymers • Trend to increase the content of recycled materials in products • Digitalisation • Consolidation • Eco-tax in France

UPM ENERGY

Self-adhesive paper and film label stock

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

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

UPM RAFLATAC

Labelling and packaging materials, office papers, graphic papers

Converters, merchants, distributors, retailers, OEMs (original equipment manufacturers), printers, publishers

• Ongoing development work on supply chain performance and service • New value-added products and services

UPM SPECIALTY PAPERS

• Joint development projects • Brand renewal promotion

• Further enhancing sustainability message • Customer focus throughout the organisation • Introduction of Responsible Fibre concept in China

Magazine papers, newsprint and fine papers for various end uses

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

• Joint product development initiatives • Launch of new products

UPM PAPER ENA

• EU Ecolabel became available for all paper products in the EU • Launch of eOrder service as part of UPM’s advanced digital services • Launch of WISA BioBond gluing technology • Introduction of several new or improved functional product properties for construction use

Plywood and veneer products, thermoformable wood material

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

UPM PLYWOOD

• Continuous customer and contract management • Development of digital end-use marketing concepts

Wood and wood-based biomass (logs, pulpwood, chips, forest residues etc.), full forestry service offering Lignin products for industrial use. Cell culture hydrogel products for biomedical applications.

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

• Focus on creating unique customer experience for forest owners • Development of forestry service offering • Enhanced digital solutions to improve customer service

WOOD SOURCING AND FORESTRY

Resins and adhesive industry, plastic compounds. Biomedical and pharma industries.

• Joint development projects with customers on technical and sustainability issues • Biochemicals webshop launch

UPM BIOCHEMICALS

UPM BIOCOMPOSITES UPM ProFi decking

Distributors of building products in Europe, contract manufacturers for large-scale consumer brands

• Joint development projects with customers on technical and design issues • Customer and stakeholder training

products and UPM Formi granules

• Digital marketing development • Demand chain understanding

CONTENTS

UPM Annual Report 2017 56

UPM Annual Report 2017 57