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

Active customer collaboration

We serve the global market with a comprehensive product range of responsibly produced renewable products for everyday use.

BUSINESS

PRODUCT RANGE CUSTOMER INDUSTRIES COLLABORATION ACTIONS IN 2018

IMPORTANT CORPORATE RESPONSIBILITY TOPICS • Product safety • Forest certification, origin of wood, sustainable forestry • Environmental performance of pulp mills, water use • Urgency to find alternatives for plastics driven by consumers, EU and national regulations • 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

MAJOR CHANGES IN CUSTOMER INDUSTRIES

Softwood, birch and eucalyptus pulp

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 • Bi-annual in-depth customer survey • Opening the bioplastics sector sales of UPM BioVerno naphtha in Europe • Joint development projects with customers

• Growth of tissue and packaging board production • Continued decline of printing and writing paper industry in mature markets • Stricter environmental legislation in China resulting in e.g. limitations of recovered paper imports • Increased demand for wood-based solutions to replace plastics • 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

UPM PULP

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

Fuel distributors, the transportation, oil and petrochemicals industries

UPM BIOFUELS

• Ensuring product functionality through motor testing • Strengthening sales and technical product support • Customer focus throughout the organisation

Standard and special sawn timber

Joinery, packaging, furniture, distribution and construction industries

• 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

• Chain of custody, origin of wood, forest certification, sustainable forest management • Safety

• Growing importance of Eastern Europe as a production area • Instability and financial challenges in markets in Middle East and North Africa region

UPM TIMBER

Electricity and related services

Nordic market and industrial consumers

• Enhanced service portfolio

• Low-emission electricity production • Active grid balance management • Fish migration

• Structural changes in the Nordic electricity market • Increased volatility of the electricity market due to intermittent weather-dependent production capacity • Mitigation of climate change through decarbonisation

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 Paper converters, merchants, distributors, retailers, printers, publishers, label stock manufacturers and commercial siliconizers Newspaper and magazine publishers, retailers, print shops, catalogue, directory and book publishers, office, envelope and home suppliers, merchants, brokers, advertising Construction, vehicle flooring, LNG shipbuilding and parquet industries as well as furniture and other industrial applications.

• Expanding customer reach through increased distribution and sales & service coverage • Specials capability investments in Finland and the US • Joint projects with customers and brand owners • Sustainability and product safety solutions • Ongoing development work on supply chain performance and service • New value-added solutions • Joint development projects • Sustainability services and training • Supporting copypaper merchants with marketing materials and initiatives

• 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, audits by customers at the mills (social responsibility) • Resource efficiency • Compliance with laws and regulations

• E-commerce increasing label use for packaging and logistics • Increase in automated product labelling and identification • Retailer and distributor network development • Increased need for sustainable label products and solutions • Legislation: Increase in mandatory product information

UPM RAFLATAC

Labelling materials, release base papers, flexible packaging materials, office papers, graphic papers

• Growth in personal care products • Increased interest in renewable and recyclable solutions • Increased share of e-commerce • Increase in automated product labelling and identification • Need for more documentation, and increase in the number of personal printers • Quality upgrade, specialised business services

UPM SPECIALTY PAPERS

Graphic papers for various end uses

• Joint product development initiatives • Launch of new products • EU Ecolabel available for all paper products in the EU

• Safety culture • Supplier social responsibility and safety performance • Forest certification, ecolabels • Resource efficiency

• Digitalisation • Consolidation • Process streamlining • Efficiency increases through automation

UPM COMMUNI- CATION PAPERS

• Sustainability agenda for a holistic approach focusing on raw material sourcing, production, role in society and the value generation for stakeholders

Plywood and veneer products, thermoformable wood material

• Launch of WISA ® -TopGrip evo2 friction floor cargo securing solution • Introduction of new functional products for construction use • Active customer satisfaction and relationship management • Development of digital end-use marketing concepts

• Safety culture • Forest certification and chain of custody • Product safety • Resource efficiency

• Increased need for services, stocks and short lead time • Requirement for product-related certifications is increasing within on-site construction end use • More customer-driven specifications among industrial end users limiting supplier’s opportunity to differentiate with a product • Increased environmental awareness drives LNG demand

UPM PLYWOOD

Wood and wood-based biomass (logs, pulpwood, chips, forest residues etc.), full forestry service offering

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

• Sustainable forestry, forest certification • Income and employment for people living in rural areas, employment of entrepreneurs

• Increasing wood demand and competition due to pulp mill investments in Finland

WOOD SOURCING AND FORESTRY

Lignin products for industrial use, nano­

Resins and adhesive industry, plastic compounds. Academic, biotech, pharma, research hospitals and CROs (contract research organisations) Distributors of building products in Europe, contract manufacturers for large-scale consumer brands

• Joint development projects on technical and sustainability issues • Joint development projects on new application and product development

• Forest certification, lifecycle analysis, ecodesign and bio-based components • Safety • Animal-free in-vitro medical research

• Growing customer preference for renewable and sustainable materials • Strong attention on recyclability of materials, namely plastics • New technologies available

UPM BIOCHEMICALS

cellulose-based products for biomedical applications

UPM ProFi decking products and UPM Formi granules

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

• Sustainable alternatives to fossil-based plastic materials • Recycling plastics and label production side streams

• Trend to find renewable alternatives to fossil-based polymers • Trend to increase the content of recycled materials in products

UPM BIOCOMPOSITES

• Digital marketing development • Demand chain understanding

UPM ANNUAL REPORT 2018 64

UPM ANNUAL REPORT 2018 65

CONTENTS