UPM annual report 2014

UPM Paper Asia

OFFICE PAPER IN HIGH DEMAND IN ASIA The market for office papers continues to grow in the Asia Pacific region. Key factors behind the growth include general economic growth, urbanisation and the increasing number of offices. To further support the development, a new production unit for manufacturing woodfree papers and label materials is being built at the Changshu mill. UPM has its own office paper brands for Asia and the company also acts as a contract manufacturer for other brands, such as office equipment manufac- turers. UPM’s own brands have a strong position particularly in China. UPM is one of the leading office paper manufacturers in the region. With significant local capacity, UPM is a reliable supplier whose delivery reliability and consistent quality are well established. Responsibility in environmental matters as well as ethical business practices bring competitive advantage.

OUR DIRECTION

OUR STRENGTHS

• Profitable growth in office papers in Asia Pacific and in labelling materials globally through competitive production, new capacity investment and strength- ened partnerships with customers by offering exceptional customer experience

• Global market leadership in labelling materials, focusing on high quality release liners and face papers • Reliable supplier with high quality fine papers in Asia Pacific with own distribution network • Exceptional customer service globally and strong office paper brands in China • Recognised industry leader in sustain- ability and environmental excellence • Competitive production assets in China and Finland

BUSINESSES 15–30

Read more: www.upmbiofore.com

KEY FIGURES

2013 1,108

2014 1,124

Sales, EURm

80

Operating profit excl. special items, EURm Capital employed (average), EURm

108 861 12.5

882

9.1

ROCE excl. special items, %

Outstanding achievement in profitability

1,457

Personnel on 31 Dec.

1,652

Business development In 2014, UPM Paper Asia streamlined its organ- isation and sharpened its customer focus. The service and product offering were aligned with individual customer needs. UPM Paper Asia is capturing its share of the growing markets by investing in new production capacity. As part of UPM’s growth projects, investment in the third production unit at the UPM Changshu mill in China proceeded well in 2014 and is expected to start up by the end of 2015. The annual production capacity is 360,000 tonnes of high quality labelling materials and woodfree uncoated papers.

Markets and drivers • The labelling materials market is growing globally, in Asia Pacific in particular. In 2014, global labelling materials market grew by 3–5%. In Asia Pacific, the growth rate is twice as high. • In developing markets, growth is driven by middle class expansion and consumption as well as by branded goods. Growth in labelling materials is also supported by the rapid development of retailers, distributor networks and automated product labelling. • In mature markets, demand is shifting towards customer-specific labelling solu- tions.

The investment will enable growth, improve local cost efficiency and enhance global market coverage of UPM’s labelling materials. It also provides an excellent plat- form for strengthening strategic partnerships with self-adhesive labelstock customers and expanding with new products in Asia Pacific. In February 2014, UPM decided to revise its investment scope by specifying more focused infrastructure investments. UPM will upgrade existing boilers with state-of-the-art technology to minimise environmental impacts. With the revised plan, the investment cost decreased to EUR 277 million from the original EUR 390 million.

• In Asia Pacific, growth in fine paper demand is levelling off, while office paper demand continues to grow. In 2014, office paper demand grew by 2–4% compared to the previous year. • Regional office paper demand is driven by economic activity, urbanisation and new company establishments. • Overcapacity prevails in all paper grades. New investments and paper machine con- versions to uncoated woodfree and label- ling materials in Asia Pacific, as well as conversions to labelling materials in Europe have intensified the competition.

Business performance Operating profit increased significantly due to lower variable and fixed costs. Average sales prices were slightly lower partly due to negative currency impacts.

Operating profit *) EUR million

100

80

60

40

20

Read more on UPM Changshu environmental investment (p. 51).

0

2012

2013

2014

*) excl. special items

UPM PAPER ASIA VALUE CREATED

CAPITALS

OUTCOMES

PRODUCTION

SALES o o Global market leader in labelling materials o o Own sales network of fine papers in Asia Pacific o o Reliable supplier o o Exceptional customer experience o o Recognised leader in sustainability

CUSTOMERS

END USES

Capital intensive process industry Engaged high performing people Community engagement Responsible sourcing Sustainable chemical pulp with full traceability Sustainable raw materials and energy

Safe and certified products Work safety Employment Career opportunity Ethical and compliance in global norms Recyclable products Low emissions ROCE

LABELLING MATERIALS o o Extensive experience in high quality release liners and face papers o o Cost competitive production

Labelstock manufacturers Siliconisers Packaging converters Merchants Printers & Publishers Merchant-owned labels

FINE PAPERS o o Leading office paper brands in China o o Selectively in uncoated and coated segments o o Cost competitive production o o BAT (Best Available Techniques)

CUSTOMER-DRIVEN R&D

CONTENTS

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UPM Annual Report 2014

UPM Annual Report 2014