UPM annual report 2014

Biofore strategy in a changing operating environment

Growth markets: UPM has an attractive platform for growth in Asia, Latin America and Eastern Europe in its pulp, paper, label materi- als and wood products businesses – serving growing consumption in a sustainable way. Efficient operations: Cost efficiency and scalable operations are important in all busi- nesses, but form the cornerstone of success in the mature European and North American graphic paper business. Innovation: UPM’s know-how and strong position in the wood processing – or biorefining – value chain is utilised to innovate new sustain- able businesses with large target markets and higher added value. Many of these new renew- able alternatives will replace non-renewable products. Responsibility: UPM applies the same high standards for environmental performance, safety at work, responsible sourcing and code of conduct everywhere in the world. The majority of the global change drivers support UPM’s businesses in the long term, but they do not affect all UPM businesses equally. This means that strategic direction, targets and actions vary throughout different UPM busi- nesses in order to capture opportunities and mitigate challenges in both short and long term.

DRIVERS FOR UPM’S BUSINESSES

The world around us is changing rapidly and the future will bring both opportunities and challenges that we have never before experi- enced. Global demand for resources – oil, food, water and energy – is surging, driven by global population growth, urbanisation and an expanding middle class in the emerging markets. Climate change has already emerged as a major global phenomenon. Furthermore, the shifting of economic power from West to East and the increasing pace at which business is conducted and digital technologies are becoming integrat- ed into our everyday lives is changing the oper- ating environment considerably. UPM’s Biofore strategy fits well into this changing world. Renewables: UPM’s products are based on sustainably-sourced renewable raw materials. More with Biofore: Making more out of less is central to UPM’s resource efficiency as well as a major source of cost efficiency and competitiveness. Recycling: Most of UPM’s products are recyclable and UPM recycles many of them into new products such as paper, biocomposites and energy. Energy: In energy generation, whether in electricity, heat or biofuels, UPM’s operations are based on reliable, low-emission and cost competitive energy sources. UPM is continu- ously improving its energy efficiency.

THEME

Low-emission and renewable energy

Fast moving consumer goods, retail

Advertising, office communication

Bio-based materials

TRENDS

Uncertain energy prices and security of supply

Global population growth

Digitalisation – from print to screen

Raw material scarcity

Ageing population in developed markets

Change in economic gravity from mature to emerging markets

Sustainability and renewability

Integrating European markets

GDP growth, urbanisation and expanding middle class in developing markets

Access to clean water

Climate change

Biodiversity loss

Change in consumer behaviour

Replacing oil-based materials

IMPACT ON UPM

Increasing regulation, uncertain rules for energy markets Preferential treatment of renewable energy

Growth opportunities for pulp and value-added labelling solutions in developed markets

Declining graphic paper consumption in mature markets Different decline rates in different paper end uses Higher demand growth for most of UPM’s products in developing markets Continuous improvement in cost competi- tiveness Focus on more attractive paper end-use segments Adjust graphic paper production capacity to profitable customer demand

Increasing raw material costs and uncertain availability

Increasing interest for sustainable products and solutions

Attractive growth prospects for pulp, label materials, wood products and office papers in developing countries

Cost for emissions

New business opportunities with ecodesign

UPM’S RESPONSE

Focus on cost competitive low-emission energy sources

Grow in cost competitive pulp

Use of renewable raw materials

Grow in labelling materials and self- adhesive labelstock in developing markets Grow in higher value-added labelstock products in developed markets

Responsible sourcing

Increase energy efficiency

Increase materials efficiency

Grow in advanced biofuels

Recycling and reuse of production waste

Plywood solutions for LNG tankers

Grow in office papers in APAC

UPM’s global biodiversity programme

Supply wood products outside Europe

Develop new businesses in biofuels, biochemicals and biocomposites

The world’s first biorefinery producing wood-based renewable diesel has started up in Lappeen- ranta, Finland.

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UPM Annual Report 2014

UPM Annual Report 2014