UPM Annual Report 2018

UPM AT A GLANCE

STRATEGY

BUSINESSES

SOCIETY AND ENVIRONMENT

GOVERNANCE AND COMPLIANCE

REPORT OF THE BOARD OF DIRECTORS

FINANCIAL STATEMENTS

AUDITOR’S REPORT

OTHER FINANCIAL INFORMATION

R&D’s role in different businesses

Advanced analytics for efficient decision-making Digitalisation continuously creates new opportunities for UPM to explore new technologies, applications and robotics to gain a competitive advantage. In addition to process automation and industrial robots, which have long been used at production facilities, tools are being created for analytics, optimisation, forecasting and more agile decision-making. Digitalisation, the extensive use of new and existing data and industrial internet solutions already form part of the processes at the mills; however, in the future digitalisation will be increasingly visible in customer-facing processes such as supply chain, sales and quality monitoring. With new digital tools, we can significantly improve the optimisation of sales, production, logistics and inventory management, as well as risk management. Utilising advanced data analytics is a quick and cost-efficient way of gaining a competitive edge and added value. UPM’s advanced analytics team is developing modern tools based on applied mathematics for use cases across the company. Solid patent portfolio creates value The significance of the patents, trademarks and intellectual property rights protecting UPM’s innovations is even more pronounced in the new businesses. A solid patent portfolio boosts UPM’s competitive edge and also provides an excellent basis for value creation in the future. UPM files approximately 360 patent applications around the world every year. For example, wood-based biofuels and biochemicals are new UPM businesses where a lot of research and product development is carried out. Innovations automatically generate a lot of intellectual property. Technical solutions and innovations that use wood, chemicals, energy and water more efficiently are also being patented in existing businesses such as pulp and paper production.

Research projects to enhance circular economy and efficiency In the value chain of forest industry products, UPM is involved in creating circular economy solutions. UPM’s research into pulp and paper mill side streams aims to find more efficient ways to utilise by-products such as sludge, ash, green liquor dregs and waste heat. More promising development projects for green liquor dregs and ash are being carried out in the construction sector and aim to replace traditional materials. The projects are part of UPM’s Zero Solid Waste project, which aims to develop solutions for recycling surplus materials to ensure that they produce added value. The China More with Biofore research programme continued its search for technical solutions to reduce water consumption and emissions, save energy and utilise solid waste at UPM Changshu paper mill. Already, the mill’s water consumption and energy efficiency are at a good level - among the best in the world - while their sulphur dioxide, nitrogen oxide and dust emissions are significantly lower than China’s most stringent limit values. The mill was awarded High Tech status by the authorities. Extensive partner network Our close-knit partner network comprises customers, universities, research organisations, suppliers and start-up companies. Collaboration speeds up the development and launch of new solutions, particularly for new businesses. UPM is involved in the European Joint Undertaking on Bio-Based Industries, (BBI). The partnership programme focuses on the development of bioeconomy, bio-based products and their production, as well as strengthening their competitiveness in Europe. UPM is a shareholder in the Finnish CLIC Innovation LTD, an open innovation cluster that aims for breakthrough solutions in bioeconomy, circular economy and cleantech as well as in smart energy systems, thus complementing UPM’s own R&D efforts.

BUSINESS AREA

DESCRIPTION

UPM Biorefining UPM Pulp

In 2018, the focus was on supporting pulp quality development actions across UPM pulp mills in Finland and focusing on information for plantations development in Uruguay. The Pulp R&D team continued to support the mills on process- related development topics according to the needs in creating further understanding of pulp quality impact on different end uses, and consolidating the research done over years on new uses for solid waste streams from pulp mills. In this respect, work has begun in 2017 and will continue in 2019 in order to utilise the research results for business development opportunities in both Finland and Uruguay. The pulp experts from UPM’s Research Centres in Finland, Germany and China were integrated into UPM Pulp’s technical customer service process, providing new added-value services for selected Pulp customers. Collaboration and product development across the whole value chain allowed UPM Biofuels to enter the petrochemicals market with UPM BioVerno naphtha as a raw material for bioplastics. The first application is wood-based plastic coating for liquid cartons that reduces the use of fossil raw materials and the carbon footprint. Operational efficiency at UPM’s Lappeenranta biorefinery was improved by targeted development projects during the turnaround. Piloting, research and process development continued at the UPM Biorefinery Development Center (BRDC) where UPM’s biofuels development started 10 years ago. In sustainability development, UPM Biofuels took a step further in gaining the world’s first Roundtable of Sustainable Biomaterials (RSB) low indirect land use change (ILUC) risk certification for crude tall oil, the feedstock used for UPM BioVerno renewable fuels production, and for UPM’s cultivation of the Brassica carinata oil crop in Uruguay. RSB is one of the world’s most trusted, valued and peer-reviewed standards for biomaterials. UPM Biofuels completed the Environmental Impact Assessment for a possible new Kotka Biorefinery in Finland and submitted it to the authorities for their final conclusions. UPM is also studying and testing the use of several new feedstocks that fulfil sustainability criteria, such as wood residues and cultivation of Brassica carinata as possible raw materials for the potential Kotka Biorefinery. The focus was on improving the cost competitiveness and environmental performance of hydro and biomass-based energy production assets and developing competencies and business operations related to the optimisation of industrial power consumption and demand-side management. UPM Energy participated in several research programmes and undertook development work with the aim of improving UPM’s operations relating to energy generation and consumption in a changing energy market. Research centres in four sites (Finland, Poland, China, USA) support the product development of paper, film and special products in the global self-adhesive labelling business operations. Cost efficiency and product customisation requirements for various end-use segments were taken into account during customer-orientated development. Sustainable alternatives and product safety increased their role alongside these requirements. Continuous quality development still remains an essential part of product and process development. Research and development efforts focus on growing businesses, growth initiatives, responsibility and operational efficiency. R&D centres in Lappeenranta, Finland, and Changshu, China, work in close co-operation with local production, customer service and global business operations. The More with Biofore in China research programme — one of the key initiatives — progressed well and new approaches were devised to further improve the environmental performance of the UPM Changshu mill. Targeted innovations allowed the portfolio to be extended to address new and profitable end uses. UPM Communication Papers launched UPM Digi Star and UPM Digi Sol for book publishing. Another example of the targeted product development work is UPM Impresse plus C, a CSWO paper grade that adds economic benefits for newspaper printers. New fibre concepts for various paper grades were also investigated at the R&D centres in Lappeenranta, Finland, and in Augsburg, Germany. In the energy sector, the focus was on technological innovations that help minimise resource input at the production sites. Efficiency was increased through own-process development, asset optimisation and digitalised maintenance concepts. The key focus areas for research and development include providing superior technical expertise and support for customers, creating competitive products within selected end-use areas, developing processes within their own production environment and supporting the commercialisation of newly developed products and applications. One example of products launched in 2018 is WISA®-TopGrip evo2 friction floor solution for trucks and trailers. The solution was developed to speed up loading time by eliminating the need for separate, manually placed friction mats underneath cargo. This improves work safety during loading as workers do not need to operate in the same space with forklifts. The friction floor also improves cargo securing, which means increased road safety.

UPM Biofuels

UPM Energy

UPM Raflatac

UPM Specialty Papers

UPM Communication Papers

UPM Plywood

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UPM ANNUAL REPORT 2018 115

CONTENTS

ACCOUNTS