UPM annual report 2014

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Innovations and R&D

The objective of UPM’s R&D programmes and business development is to create new technologies and products, provide support to and ensure the competitiveness of its businesses. The share of R&D work increased in new technologies and growth businesses such as developing biofuels, biocomposites, biochemicals, biofibrils, pulp and CO 2 -neutral energy in 2014. UPM Biofuels entered its commercialisation phase in 2014 and is included in the UPM Biorefining business area.

UPM ProFi and UPM Formi composites combine the best characteristics of natural fibres and plastic. Their principal ingredients are cellulose fibres and polymers, which can be either virgin or recycled. The non-toxic compos- ites can be recycled. UPM ProFi products are used for decking and other outdoor end uses. They are made mainly from the surplus paper and plastic left over from the production of self-adhesive label materials. UPM Formi composite is used to replace plastic in many applications, from furniture to consumer electronics. UPM Formi is manufac- tured from cellulose fibre and plastics. Around half of the oil-based plastic is replaced with cellulose fibres in the biocomposite. Products manufactured from UPM Formi comply with food contact material requirements stipulated in the EU and US Food and Drug Administration (FDA) regulations. The composite also complies with EU toy safety regulations. UPM Biochemicals has profound know-how in lignin-based products The UPM Biochemicals unit develops wood- based chemical building blocks, performance chemicals and biofibrils. Chemical building blocks are a cost competi- tive replacement for fossil-based monomers and chemicals such as intermediates to bioplastics. Performance chemicals utilise the basic structure of the natural biopolymers of wood, such as lignin and hemicellulose. Biofibrils™ products and lignin, the binding agent of wood, are examples of UPM’s perfor- mance chemicals. Biofibrils are cellulose micro- and nanofibril products that can be used for shaping materials and giving them new charac- teristics. Lignin for example can be used in various resin mixtures and adhesives. In 2014, UPM Biochemicals worked with Renmatix to test the company’s water-based Plantrose™ process. The goal is to convert woody biomass into intermediates for subse- quent downstream processing into biochemicals. In addition, UPM Biochemicals signed a lignin supply contract with Domtar Inc. to develop the market and offer sustainable, value- added products for a growing variety of end uses. UPM Biochemicals has developed profound know-how and intellectual property in the area of lignin-based products, e.g. resins, which are typically used as binders in wood-based prod- ucts. UPM BioPiva™ lignin for resin formula- tions, based on UPMs proprietary activation technology, is one example of this kind of product. Product development at UPM Biochemicals is at the pre-commercial phase, with UPM actively developing and testing industrial appli- cations with its partners in order to create mill-scale industrial concepts.

PARTNERSHIPS HELP BRING ADDED VALUE TO SIDE-STREAMS In December 2014, UPM announced its agreement with Indicatorium Oy for the international commercialisation of the food freshness indicator technology developed by UPM. Food freshness indicator is a smart label that reacts to certain chemicals and helps to determine whether a food product is still fresh and safe to eat. The co-operation is a good example of UPM actively using its extensive patent portfolio, by which it is seeking business development and innovative partnerships for various bioeconomy projects and the development of by-product utilisation. With the help of co-operation, UPM is aiming to develop new business models and utilise patents that would otherwise be neglected. UPM is looking for partners among other industrial companies, start-ups, research institutes (e.g. FIBIC) and various other entities that facilitate the commercialisation of technologies (VTT, Sitra). Occasionally, UPM also forms partnerships with its customers, like in the case of the RafCycle label waste recycling concept. These partnerships help UPM divide the workload, bringing more flexibility and agility to its operations. UPM’s contributions to the projects include transferring and sharing its know-how on technology and environment.

UPM’s development expenditure EURm %

BUSINESSES 15–30

150

120

■ Developing businesses *) ■ Mature businesses Of operating cash flow

*) Includes negative operating cash flow and capital expenditures

Increasing efficient use of resources

Annual patent filings 2010–2014

400

320

240

In 2014, UPM spent EUR 112 million (155 million) on research and development work equating to 9.0% (21.1%) of UPM’s operating cash flow. On top of the direct R&D expenditure of approximately EUR 35 million (38 million), the figures include negative operating cash flow and capital expenditure in developing businesses. Versatile use of wood biomass UPM’s Biofore strategy is based on the versatile use of renewable wood biomass, combined with innovation, resource efficiency and sustainability. The purpose is to replace non-renewable materi- als with renewable, recyclable and low-impact alternatives – the main drivers for bioeconomy. Improvements in material efficiency make it possible to consume fewer resources and raw materials in production processes. Therefore, UPM’s R&D work has expanded its focus to the more efficient use and reuse of side streams. The most recent examples are UPM’s Elurit and Cinerit construction products that are made of fly ash from the thermal recovery of biogenic waste materials. UPM has a global network of research cen- tres to support the businesses and their business development goals. All of UPM’s businesses and R&D centres have adopted ecodesign in their product development processes. This means that environmental aspects are systematically inte- grated into product design at an early stage. Wide-scale collaboration in new businesses UPM is a shareholder in the Finnish Bioecono- my Cluster (FIBIC). The Cluster’s research programmes focus on the bioeconomy and prod- ucts based on renewable materials, thus support- ing UPM’s internal R&D activities. Moreover,

UPM is a shareholder in the Finnish CLEEN Ltd research company that is focusing on energy and environmental research. The research clusters support the Finnish bioeconomy and cleantech strategies with the aim of increasing sustainable businesses in Finland. The clusters’ research projects are in line with the research and implementation activities of UPM’s Biofore strategy. In July 2014, EU and industry leaders launched a new European Joint Undertaking on Bio-based Industries (BBI) in which UPM acted as one of the founding members in industrial consortium part. This Public Private Partnership (PPP) aims to trigger investments and create competitive market for bio-based products and materials that are sourced locally. For UPM, the PPP is an important funding element for speeding up the implementation of future investments in new areas such as biochemicals, biocomposites and biofuels. In 2014, UPM received approximately EUR 2.1 million (3.8 million) from Tekes (the Finnish Funding Agency for Technology and Innova- tion) for its research projects. These projects were carried out in co-operation with research institutes, universities and other companies. UPM’s intellectual property rights applica- tions have increased significantly during the last few years. The importance of patent registration highlights the progress made in new businesses. UPM’s biocomposites combine natural fibres and plastic The UPM Biocomposites business unit devel- ops, manufactures, markets and sells high qual- ity composite products and granulates for a wide range of consumer and industrial applications.

160

UPM’s patent filings have grown significantly in past years. The filings are mainly related to UPM’s developing businesses such as biofuels, biocomposites and biochemicals.