UPM Biofore Magazine 1-2018

SPEARHEADS FOR GROWTH

HIGH VALUE FIBRE

SPECIALTY PACKAGING MATERIALS

MOLECULAR BIOPRODUCTS

THE KEY FACTOR these three spearheads have in common is the deep level of knowhow required to manufacture high-quality products. What is more, there is a high threshold for potential competitors to enter such specialised markets.

Raflatac Specialty papers

Forests  Pulp

Biofuels  Biochemicals

Communication papers

Plywood

Energy

“CONSUMER DEMAND is primarily driven by the new middle classes in emerging economies. But growing consumption also highlights the need for responsibility. Manufacturing has to transition away from dwindling fossil resources and towards renewable, recyclable raw materials,” notes Jussi Pesonen.

innovation from the initial idea through R&D to a successful market launch is a long road fraught with challenges. For example, UPMbegan developing biofuels in 2006, but the decision to invest in a production facility was not made until 2012, and it took another four years for production to ramp up to full speed. Three spearheads of growth Pesonen explains that while UPM strives to grow across all its business areas, there are three strategic spearheads: specialty packaging materials, high-value fibre products and biomolecules. “In particular, we aim to invest in businesses that offer attractive long- term fundamentals for profitability and growth, as well as opportunities to achieve a sustainable competitive advantage.” The key factor these segments have in common is the deep level of knowhow required to manufacture high-quality products. What is more, there is a high threshold for potential competitors to enter such specialisedmarkets. In the case of specialty packaging materials, for instance, UPM

has developedmore advanced manufacturing technology than its competitors, helping to establish itself as a global leader on the label release paper market. “In the segment of biofuels and biochemicals, we have a lot of proprietary knowledge and protected intellectual property rights that our competitors can’t match. We are the first company to develop a process for manufacturing these products from solid wood.” Why quality always wins The pulp industry, too, is a market with a high entry threshold, because setting up production facilities requires massive investment. Pesonen believes that UPMhas a competitive edge in pulp thanks to its cost-effective, responsible production and supply chain all the way from the forest to the customer. “The pulp operators that succeed are the ones with efficient access to wood. In Finland, we have an efficient wood sourcing organisation for purchasing wood fromprivate landowners. In Uruguay, the raw material is sourced fromplantations. This presents certain challenges related

to tree cultivation that need to be managed.” Pesonen highlights the importance of impeccable product quality, which can be a competitive advantage in more traditional UPMproduct groups. In the graphic paper market, for example, buyers appreciate responsibly manufactured high-quality products. The same is also true of plywood products, where UPM’s growing customer base includes tanker manufacturers whose vessels are used for transporting LNG (liquefied natural gas). “Birch plywood has turned out to be the best product for insulating tanks that transport LNG at –163°C. Even in these extreme conditions, the plywood still retains its strength and dimensions.” Investing in tomorrow Thanks to its healthy cash flow and balance sheet, UPMhas been able to make focused investments in its spearhead growth businesses. For example, UPMhas expanded its Kymi and Kaukas pulpmills in anticipation of future growth in pulp demand. Amajor step is also planned

Building on four cornerstones Over the coming years, UPMwill continue to build on its current four cornerstones: performance, growth, innovation and responsible operations. “We can increase our earnings in two ways: by improving cost competitiveness or by increasing sales. In the latter case, new growth projects are crucial.” Pesonen emphasises that the demand for continuous improvement applies not only to financial performance, but also to employee competence and working culture. “Innovation is at the core of our strategy, as new products and technological advances generate opportunities for growth. But we also need to continuously reform our existing businesses.” Pesonen sees the biomolecule segment as particularly fertile ground for new growth. Thanks to UPMBioVerno diesel produced in Lappeenranta, new-generation biofuels are already a profitable business segment for UPM. The company’s biochemicals business is still in the early stages, but it has potential to become a substantial source of growth in decades to come. Pesonen notes that the journey of an

“Innovation is at the core of our strategy, as new products and technological advances generate opportunities for growth. But we also need to continuously reform our existing businesses.”

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