UPM annual report 2014

UPM Paper ENA (Europe & North America)

LESS IS MORE IN PAPER UPM has launched a new high quality and competitive printing paper grade, UPM Valor, designed especially for magazine publishers and brand owners. It is a prime example of how UPM’s papers add value for customers by providing savings in mailing and delivery costs without the need to compromise on quality. UPM Valor matches the quality and the properties of the reference paper grades but is up to 15% lighter in basis weight. Since fewer raw materials are needed, UPM Valor supports the sustainability of customer operations with a smaller environmental footprint throughout the value chain. After the launch in 2014, several international brand owners such as Spiegel, IKEA and Finnair have integrated UPM Valor into their paper portfolio. As an example, the weight loss achieved by Finnair’s in-flight magazine means that the airline company will save on fuel costs.

OUR DIRECTION

OUR STRENGTHS

BUSINESSES 15–30

• Improve profitability and maximise cash flow through simplified customer-focused sales strategy • Make use of optimisation opportunities in the large low-cost production platform

• Large low-cost operating platform providing continuous opportunities for optimisation • Reliable supplier with consistently high quality, excellent service as well as wide product palette • Scale and skills in responsible sourcing and manufacturing • Environmental and technical expertise, consistent product development

Read more: www.upmpaper.com

KEY FIGURES

2013 5,560

2014 5,284

Sales, EURm

0

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

181

2,672

2,511

0.0 4.6

ROCE excl. special items, %

7.2

CF/CE %

12.9

11,081

Personnel on 31 Dec.

10,467

Significant improvement in profitability

Markets and drivers • Graphic paper demand is driven by

Business development 2014 was characterised by the decision in 2013 to reorganise the business into a customer-based structure with differentiated strategies. UPM Paper ENA was organised into three customer- based Strategic Business Units (SBU); Magazine Publishing & Advertising; Newspaper Publish- ing; Merchants, Home & Office. The reorganisation sharpened operational focus in each strategic business unit, facilitating management of the business segments towards differentiated target setting with faster decision making. UPM Paper ENA’s leaner structure and decentralised profit responsibility also sparked agility and engagement within the organisation, laying the foundations for further improvements in production and supply chain management as well as customer focus.

outlook for growth in the European economy deteriorated in the second half of the year and contributed to the challenging market environment. In November, UPM announced plans to reduce 345,000 tonnes of newsprint and 460,000 tonnes of magazine paper capacity in Europe in 2015. With the closures, UPM aims to adapt its production to meet profitable customer demand and ensure efficient use of its remaining production capacity without endan- gering customer deliveries. The fixed cost reduc- tion related to the capacity closures is expected to be EUR 55 million and is part of the group- wide EUR 150 million profit improvement programme. The UPM Docelles paper mill in France was closed in January 2014. The mill produced 160,000 tonnes of uncoated woodfree papers annually.

UPM Paper ENA also successfully launched new paper products, e.g. UPM Valor, UPM Impresse and UPM ReCat. In the first half of 2014, UPM Paper ENA implemented measures relating to the first profit improvement programme (announced in August 2013). Fixed costs were reduced through focusing, de-layering, increased scal- ability and simplification of working proce- dures. Variable costs were reduced in sourcing, logistics and manufacturing. Thanks to success- ful implementation of the profit improvement programme, combined with some tailwind from lower input costs, UPM Paper ENA achieved a clear turnaround in profitability. Market conditions remained challenging in 2014 although the decline in paper demand moderated somewhat, and the price slide lev- elled off. Nevertheless, overcapacity continued to plague the European paper markets. The

advertising spending in printed media and in targeted and unaddressed direct marketing, magazine and newspaper circulations and titles, as well as home and office paper consumption. • Following the increased use of digital media in the consumer market, paper consumption is in structural decline in mature markets in Europe and North America. Despite the overall decline however there are still growth opportunities in certain end uses and markets. • In Europe, demand for graphic papers decreased by 3% in 2014. The decline was steeper in newsprint and magazine paper, while fine paper demand remained stable. • In North America, demand for magazine paper decreased by 3% in 2014.

Business performance Operating profit increased due to signifi- cantly lower variable and fixed costs, driven to a large extent by the profit improvement programmes, more than offsetting the negative impact from sales prices and deliv- ery volumes.

Operating profit *) EUR million

200

150

100

50

0

2012

2013

2014

-50

*) excl. special items

UPM PAPER ENA VALUE CREATED

CAPITALS

OUTCOMES

CUSTOMERS

END USE

CUSTOMER-BASED BUSINESS UNITS

o o Customer focus and offerings o o Wide product range o o Reliable supplier o o Common operational platform for production, supply chain and sales MAGAZINE PUBLISHING & ADVERTISING NEWSPAPER PUBLISHING MERCHANTS, HOME & OFFICE

Capital intensive process industry Engaged high performing people Community involvement and local presence Responsible sourcing Virgin fibre from certified sources Recycled fibre Chemical pulp with full traceability Sustainable raw materials and energy

Publishers Printers Retailers

Safe and certified products Work safety Employment Recyclable products Renewable energy Low emissions Vitality of local communities Responsible restructuring Cash flow / Capital employed

Cataloguers Advertisers Brand owners

Merchants Converters

PRODUCTION o o Efficient and cost competitive production o o Environmental and technical expertise o o Focused R&D

SALES o o Market-based, global sales o o World class technical service o o Excellent customer service

CONTENTS

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UPM Annual Report 2014

UPM Annual Report 2014