UPM annual report 2014

UPM Plywood

CO-OPERATION DRIVES WELLBEING AT WORK UPM Kalso veneer mill in Kouvola, Finland has focused on the development of leadership, management skills and solution-oriented decision-making, and the results are beginning to show. The changes have been driven by rapid changes in the veneer business, personnel reductions and concern for the mill’s future, which could be seen in the Employee Engage- ment Survey feedback. The mill identified relevant development areas in workshops and created clear action plans based on them. The business and mill management team, together with the employees, began to systematically change old practices and fix identified issues. From the beginning, shop stewards had a significant role in the improvement of the work environment and wellbeing of the employees. The main action points for the mill were the development of multiple skills and job rotation. Changes were made to meeting practices and content, decision-making, information flow and communication. In addition, the mill has focused on improving people management, working conditions and wellbeing reviews.

OUR DIRECTION

OUR STRENGTHS

• Profitable growth through operational excellence and customer-oriented service • Strengthen market position in selected businesses by increasing value and service offering

• Leading supplier in demanding end-use segments • Reliable supplier with consistent high quality • Superior customer service • Strongest brand in the market – WISA ®

BUSINESSES 15–30

KEY FIGURES

2013

2014

429

Sales, EURm

440

Consistent work delivered results

21

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

44

286

268 16.4

7.3

ROCE excl. special items, %

2,455

Personnel on 31 Dec.

2,441

Markets and drivers • Plywood demand is driven by activity in the building and construction and furniture industries as well as industrial end-use segments such as transportation. • Plywood demand in Europe is estimated to have increased slightly in 2014. Demand was slightly higher in industrial applications than in construction-related end-use segments. • The plywood market in Europe was in balance in 2014, and sales prices increased slightly.

Business performance Operating profit increased significantly due to a clear improvement in sales margins resulting from both higher sales prices and lower variable costs. Fixed costs remained on the previous year’s level. Business development UPM Plywood’s performance has consistently improved thanks to past years’ restructuring and streamlining measures and a renewed commer- cial strategy. In 2014, UPM Plywood proceeded with measures to further improve performance in several areas, focusing particularly on sales management and service offering as well as operational efficiency and work safety.

UPM Plywood made further progress in its customer-oriented approach in 2014. A clear definition of the value proposition to custom- ers in 2013 enabled UPM Plywood to enhance its technical support, services tailored to end- use needs and services to improve customers’ process efficiency. Through its improved customer focus, UPM Plywood has successfully increased sales to demanding end-use industrial applications such as LNG (liquefied natural gas) vessels and trailer manufacturers. Investment activity in the LNG industry is high and the outlook remains good. In the area of road freight applications, UPM Plywood has provided expertise to fur- ther reduce the weight of trailers in co-opera-

tion with trailer manufacturers and has launched the WISA Bonded Floor plywood solution. The new application brings about both economic and environmental benefits. UPM Plywood’s increasingly value-oriented customer offering improved average sale prices compared to the previous year. In 2014, UPM Plywood also succeeded in further improving its operational efficiency. Fixed costs remained at the previous year’s level as the benefits of a new maintenance model and strict cost control offset the impact of cost inflation. A shorter maintenance shutdown at the Finnish mills improved production flexibil- ity and enabled UPM to respond to customer demand with increased production. Intensified

efforts in supply chain and production manage- ment resulted in improved quality, higher delivery assurance and lower unit costs. In 2014, production efficiency improved in particular at the Savonlinna birch plywood mill in Finland. Since the extension and modernisa- tion work was completed in 2012, production efficiency has gradually improved and the mill offers further improvement potential. Safety issues have been made an integral part of the business management system and daily activities, and thanks to a continued systematic approach and readiness to intervene in risk situations, safety results have improved considerably, reaching world class industry levels in 2014.

Operating profit *) EUR million

50

40

30

20

10

0

2012

2013

2014

*) excl. special items

UPM PLYWOOD VALUE CREATED

CAPITALS

OUTCOMES

PRODUCTION

SALES

CUSTOMER INDUSTRIES

END USES

Moderately labour and capital intensive industry Engaged high performing people Community engagement Responsible sourcing Sustainably sourced wood from certified sources with full traceability Sustainable energy

Safe and certified products Carbon storing products

o o Leading supplier in demanding end uses o o High quality o o Supply chain services o o Professional technical services o o Reliable supplier o o Strong brand

PLYWOOD MILLS (SPRUCE)

Construction LNG shipbuilding Vehicle flooring Parquet Other industrial manufacturing

Employment Work safety Vitality of local communities Low emissions ROCE

PLYWOOD MILLS (BIRCH)

VENEER MILL

Product and process development

CONTENTS

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28

UPM Annual Report 2014

UPM Annual Report 2014