UPM annual report 2015

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

UPM Paper Asia

Preparing for growth

A Chinese project with focus on safety UPM has completed its new paper machine project at the UPM Changshu mill in China not only on time, but with an enviable safety record. Strict safety rules were implemented throughout the entire project which reached over four million hours’ work time without a single lost time accident (LTA). Since dozens of contractors and suppliers were involved in the project, a comprehensive occupational health and safety (OHS) plan was produced and distributed to every new supplier. This time much of the equipment was sourced from China. All of the subcontractors were selected by UPM and were mainly local companies. Also UPM’s largest environmental investment in 2015 was linked to the project as the wastewater treatment plant was expanded and air protection technology was upgraded.

OUR DIRECTION • In Label, Pack & Release, profitable growth globally through competitive production, innovations and strengthened partnerships with customers by offering an exceptional customer experience and leading sustainability performance • In Fine Paper Asia-Pacific, profitable growth in high quality office papers, new innovations through strengthened partnerships with customers achieved by offering exceptional customer experience and leading sustainability performance OUR STRENGTHs • Global market leadership in labelling materials, focusing on high quality release liners, face papers and flexible packaging papers • Reliable supplier with high quality fine papers in Asia Pacific with extensive distribution network • Exceptional customer service globally and strong office paper brands in China • Recognised industry leader in sustaina­ bility and environmental excellence • Cost efficient operations with unique position on the Asian market

Business performance Operating profit decreased mainly due to the negative impact of currency hedging. Return on capital employed decreased and was short of the long-term target. Business development In 2015, UPMPaper Asia completed the investment in a third production unit at the UPMChangshu mill in China. Production started in December. The new unit, part of UPM’s growth investments, facilitates growth in labelling materials and release liner markets globally, in the Asian office and graphic paper market as well as in various converting end uses. The annual production capacity is 360,000 tonnes. The investment further strengthens UPMPaper Asia’s unique position on the Asian market. The business area is headquartered from Shanghai within the fast growing region in China. The production operations in Changshu are conveniently located close to Shanghai and next to the Yangtze river, providing logistical competitiveness. UPM Paper Asia has an extensive sales and distribution network throughout Asia and is a recognised industry leader in sustainability and environmental excellence globally. The new production unit enables growth, improves local cost efficiency and enhances global market coverage of UPMPaper Asia’s labelling materials and release liners. Due to shorter lead times, the new unit provides an excellent platform for strengthening partnerships with customers through improved capability to provide a full range of services and new products in Asia Pacific. Thus far production has been concentrated to two mills in Finland. The unit will also improve production flexibility for the European and North American markets. Global labelling materials demand growth is primarily driven by economic growth in emerging markets as well as growth in automated product and logistics labelling, meanwhile demand for release liner, as a carrier of adhesive materials used e.g. in various fastening systems of hygiene, graphic, industrial applications or in manufacturing, has a wide variety of end uses with robust growth outlook. UPMPaper Asia holds a strong position in office papers in China and selectively in coated and uncoated fine papers in Asia. Graphic fine paper demand is in slight decline, whereas the new production unit particularly responds to continued growth in office papers and various converting applications, driven primarily by economic activity in the region. UPM’s success on the Asian fine paper market is supported by high quality prod- ucts, well established own brands, excellence in sustainability, and exceptional customer experience through an extensive own sales and distribution network. UPMPaper Asia’s growth opportunities have been restricted by capacity.

Markets and drivers • The labelling materials and release liner market is growing globally, particularly in Asia Pacific. In 2015, the global market grew by 3–5%. In Asia Pacific, the growth rate was even twice as high. • In developing markets, growth is driven by private consumption, middle class expansion and branded goods. Growth is also supported by the rapid development of retailers and automated product labelling. Moreover, release liner demand is driven by increasing use of pressure sensitive adhesive materials in consumer products, industrial applications and the manufacturing industry. • In Asia Pacific, fine paper demand somewhat decreased, while office paper demand grew by 2–3% in 2015 compared to 2014. • Regional office paper demand is driven by economic activity, urbanisation and new company establishments. • In Asia overcapacity prevails in all paper grades and US anti-dumping and countervailing duties on some Asian producers are adding regional fine paper supply. New investments and paper machine conversions to uncoated wood-free and labellingmaterials in Asia Pacific, as well as conversions to labellingmaterials in Europe have intensified the competition.

Read more: www.upmpaper.com, www.upmbiofore.com

Operating profit *) EUR million

125

100

75

50

25

0

2013

2014

2015

*) excl. special items

KEY FIGURES

UPM Paper Asia value created

2014

2015

CAPITALS Capital intensive process industry Engaged high performing people Community engagement Responsible sourcing Sustainable chemical pulp with full traceability

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

PRODUCTION Label, Pack & Release

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

END USES

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

1,168 1,124

Sales, EURm

108 861 12.5

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

55

1,012

o o Extensive experience in high quality release liners and face papers, selectively in flexible packaging papers o o Cost efficient production Fine Paper Asia-Pacific o o Leading office paper brands in China o o Selectively in uncoated and coated segments o o Cost efficient production o o BAT (Best Available Techniques)

ROCE excl. special items, %

5.4

1,738 1,652

Personnel on 31 Dec.

CUSTOMER-DRIVEN R&D

contents

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UPM Annual Report 2015

UPM Annual Report 2015