UPM-Biofore-Magazine-3-2016-EN

According toWahlroos, UPMhas learned frompast mistakes. The company will continue making investments, but the process will be smarter andmore selective. By way of example, he points to UPM’s substantial investments improving the efficiency of pulpmills and increasing production capacity in Finland and Uruguay. The investments that have already been realised or are currently ongoing will increase capacity by 500,000 tonnes, which corresponds to the capacity of one traditional pulpmill. “Our investments have been targeted very precisely. We have been able to increase production capacity significantly by making relatively small investments and by removing bottlenecks in our production.” Among its largest recent investments, earlier this year UPM started up a new special paper machine in China that has increased capacity by nearly 400,000 tonnes. In addition, UPM has announced that the company is assessing the possibility of building a new short-fibre pulpmill in Uruguay. Wahlroos states that UPM’s strong balance sheet provides a solid basis for planning these and other cautiously targeted investments. “There has probably never been a comparable case in the history of the forest industry where a company can take its time considering a two-billion-euro investment without having to worry about financing. UPM is in this fortunate position today.” Responsibility brings stability Wahlroos is optimistic about the current global economic outlook, which provides a positive cue for new investments. Even so, there are economic and political risks associated with this positive trend. “The global economy is expected to grow at an annual rate of 3–4 per cent in the next five to ten years. This growth is driven by China and India. Unfortunately, this casts Europe in the role of the ‘sick man’ of the global economy.” These days investors take a long-term viewwhen assessing companies and their chances of success. Wahlroos notes that a responsible business is usually more efficient at risk management and provides a more stable profit return for its shareholders in the long run. He regards it as important for UPM to promote responsible practices in a systematic manner, both in its own business and throughout the value chain. “For me, responsibility means that we are primarily responsible to those who have invested the most resources in our company. This means that our primary responsibility is to our shareholders and our secondary responsibility is to the financiers,” he states. “In addition, we are also responsible for ensuring that the company complies with all legal regulations and the highest standards of good practice in all its operations. This way, we are also shouldering our responsibility with respect to other stakeholders and society overall.” Wahlroos additionally emphasizes the importance of adhering to a responsible human resources policy. “In recent years, we have made a special point of promoting safety at work, for example. Our efforts have paid off. UPM’s occupational safety statistics have improved dramatically.” 

“We are at a fascinating technological turning point where we are seeing major progress in the use and refinement of wood fibres. This opens up new opportunities for UPM.” Firm foothold on pulp market The pulp business is an important growth area for UPM. The demand for pulp is continuing to grow, particularly in developing economies. Wahlroos points out that the investments recently made by UPM in its production facilities will help to strengthen the company’s foothold in the pulp market. The efficiency of UPM’s pulpmills and their use of the latest technology are among UPM’s core strengths, he notes. “Another extremely significant factor is choosing the right sales strategy for pulp: in other words, we must carefully define the pulp we want to sell to others and the pulp we intend to use in our own production.” Two thirds of the pulp produced by UPM is sold to customers around the world, mainly in Europe and China. The company’s own paper businesses purchase the remaining third. “The fundamental questions involved in the pulp business are extremely interesting, because market pulp is a truly global rawmaterial.” Shareholders want dividends In recent years, reducing the company debt and strengthening the balance sheet has been a key objective for UPM. Wahlroos is happy with the results of these efforts. In the third quarter of 2016, net debt was reduced to less than EUR 1.5 billion. In 2008, the total sum stood at EUR 4.3 billion. “The huge debt was beginning to pose a risk. Our corporate credit rating had fallen into the ‘junk’ category, and climbing back up has been a tough job. Our credit ratings still haven’t improved enough, but they will continue to get better.” Meanwhile, UPMhas increased the dividends paid to shareholders year by year. “UPM’s shareholders include many large foundations, funds and foreign investors. These shareholders expect a significant portion of the company’s increased capitalization value to be distributed as dividends. In such cases the wisest thing the company can do is to listen to them and apply a stable, relatively generous dividend policy.” Balancing dividends and investment Public debate and the media sometimes voice a call for companies to invest in production instead of distributing dividends. Wahlroos warns against such generalised demands, because the situation is different for every company and industry. In his opinion, UPMhas struck a good balance between distributing dividends andmaking investments. “The greatest curse in the history of the forest industry has been overinvestment. Time and again, companies have ruined their profitability and sometimes even undermined their financial standing by letting money burn a hole in their pocket andmaking unwise investments.”

Earlier this year UPM started up a new special paper machine in China that has increased capacity by nearly 400,000 tonnes.

“We are at a fascinating technological turning point where we are seeing lots of progress in the use and refinement

of wood fibres. This opens up new opportunities for UPM.”

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