UPM annual report 2015

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

Commercialising innovations Green Campus Innovations (GCI), an investment company established in 2012 by Lappeenranta University of Technology (LUT), is one of UPM’s partners in commercialising innovations that cannot directly be used in UPM’s core business areas. The collaboration between the university, the investment company and UPM enables the partners to combine their competencies in bioeconomy, industrial engineering and management. In 2015, UPM and LUT signed a license contract concerning the Biokenno technology developed by UPM. LUT has applied and received funding for the further development and commercialisation of the licensed technology from Tekes, the Finnish Funding Agency for Technology and Innovation. GCI will play an important role in commercialising the Biokenno technology and in developing the business around it. The Biokenno technology has been licensed to the university which will assemble a research group for carrying out further research. BioKenno is a biodegradable, board-based growing medium that market gardens can use to replace materials such as rock wool. R&D’s role in different businesses R&D’s role is to support development in following focus areas: UPM Biorefining Pulp and plantations optimisation for various needs Biofuels UPM Energy Energy conversion technologies for a wide range of biomass and fuel mixtures CO 2 -neutral energy sources Opportunities arising from the evolution of the electricity market UPM Raflatac Expansion of product range and market support UPM Paper Asia Effective support for paper businesses in growth markets and new products UPM Paper ENA Cost competitive and resource efficient solutions and new products UPM Plywood Products with special customer value Process efficiency New businesses Supporting the development of new opportunities building on synergies Developing competencies and a common infrastructure Read more: www.upm.com/innovation, www.upmprofi.com, www.upmformi.com, www.upmbiochemicals.com

Innovations and R&D

Innovations are at the forefront in the creation and development of new products that can be used to replace non-renewable materials with renewable, recyclable and low-impact alternatives and provide resource efficient alternatives for the future. The aim 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. By co-operating with selected value chain partners UPM aims to increase its speed, agility and effectiveness.

Efficient use of resources

UPM actively manages its patent portfolio and evaluates the applicability and commercial value of its patents. UPM is trying to seek new commercialisation partners for patents not suitable for our businesses. Biocomposites combine best properties of natural fibres and high performance polymers UPMBiocomposites develops, manufactures and sells high quality composite products for a wide range of consumer and industrial applications. UPMProFi’s Design Deck range is one of the leading composite decking brands in Europe. Through patented recycling technology, UPMBiocomposites recovers the cellulose fibres and polymers found in label material waste and gives them a second life. UPMFormi is the engineered range of pure cellulose and virgin polymer compounds suitable for various applications from furniture to consumer elec- tronics. The products have a considerably lower carbon footprint than those made with pure plastics. Biochemicals offer a sustainable alternative to fossil-based solutions UPMBiochemicals offers and develops innovative, sustainable and competitive wood-based biochemicals. The product segments are chemical building blocks, lignin products, biofibrils and biomedical products. Chemical building blocks are made from lignocellulosic biomass offering a cost competitive replacement for fossil-based monomers and chemicals such as intermediates to bioplastics. Lignin is one of nature’s most abundant materials and an ideal bio-based substitute for various petro-based products e.g. resins and binders. UPM BioPiva™, based on UPM’s proprietary lignin-resin technology, allows resin producers to substitute up to 70% of their fossil-based rawmaterials with a non-toxic, 100% bio-based, and cost effective alternative. Biofibrils are cellulose micro- and nanofibril products that can be used for shaping materials and giving them new characteristics. Biofibrils products can be used as a suspension aid and rheology control agent or reinforcement and barrier element in different uses. GrowDex is a novel wood-based cellulose nanofibril hydrogel for 3D cell culturing and other biomedical applications. It is highly biocompatible with human cells and tissues. In 2015, UPM’s ValChem project received a EUR 13.1 million funding from the European Union. ValChem stands for Value Added Chemical Building Blocks and Lignin fromWood. The aim is to demonstrate the technical and economic viability of an integrated biochemical process, covering the whole value chain fromwood rawmaterials to a selected platform for chemical and lignin-based performance chemicals. Product development at UPMBiochemicals is at the pre-commercial phase, with UPM actively developing and testing industrial applications with its part- ners in order to create mill-scale industrial concepts.

In 2015, UPM spent EUR 63 million (112 million) on research and development work equating to 5.3% (9.0%) of UPM’s operating cash flow. The focus was on new technolo- gies and developing businesses. On top of the direct R&D expenditure of approxi- mately EUR 37 million (35 million), the figures include negative operating cash flow and capital expenditure in developing businesses. Versatile use of wood biomass UPM is seeking business development and innovation in various bioeconomy projects through collaboration. The special focus areas are new biobased products, develop- ment of by-product utilisation, resource efficiency and the circular economy. UPM’s side stream efficiency research is looking for solutions to better utilise the side streams of UPM’s integrated pulp and paper mills; sludge, ash, various rejects and waste heat. The aim is to reduce costs and increase the value of side streams by finding new business opportunities in industrial symbioses. In the UPMKaukas mill, studies have been done to produce biogas from sludge in co-operation with the Lappeenranta city experts and other external partners. Fertilizer development and nutrient recirculation is also part of UPM’s circular economy solutions. Other studies relate to new end uses for ash in construction appli- cations. Also good saving ideas have been found in mills’ heat efficiency. UPMhas a global network of research centres to support the businesses and their development goals. Environmental aspects are systematically integrated into product design at an early stage. Wide-scale collaboration in new businesses UPM is one of the founding members of the industrial consortium part of the Euro- pean Joint Undertaking on Bio-based Industries (BBI). This Public Private Partner- ship (PPP) aims to trigger investments and create a 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. UPM is a shareholder in the Finnish CLIC Innovation, which focuses on bioec- onomy and cleantech research. The Cluster’s research programmes focus on bioec- onomy as well as energy and environmental research, thus supporting UPM’s internal R&D activities. In 2015, UPM received approximately EUR 1.4 million (2.1 million) fromTekes (the Finnish Funding Agency for Technology and Innovation) for its research projects. These projects were carried out in co-operation with research institutes, universities and other companies. UPMworks together with a wide network of universities and research institutes as well as technology suppliers and startups. Partnerships enable us to develop new solutions and get to the market faster, especially in new businesses. UPM’s intellectual property rights applications remained on a significant level. The high level of patent registration highlights the progress made in new businesses.

UPM’s development expenditure EURm %

25

150

20

120

15

90

10

60

5

30

0

0

11

12

13

14

15

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

*) Includes negative operating cash flow and capital expenditures

contents

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UPM Annual Report 2015

UPM Annual Report 2015