UPM annual report 2015

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

Consistent progress

UPM Raflatac

Business performance Operating profit increased because of higher sales margins partly resulting from improved operational efficiency and higher delivery volumes. Fixed costs increased. Exchange rate adjusted sales grew by 6% in 2015 compared to 2014. Return on capital employed increased for the second year in a row and came close to the long-term target. Business development UPMRaflatac’s performance improved in all geographical regions thanks to efficiency improving measures and timely growth investments. Delivery volumes improved above all in Europe, UPMRaflatac’s largest market. Solid progress in 2015 was in part a result of successful product portfolio develop- ment, particularly in film and special products. Exchange rate adjusted sales of films and special label products grew by 7% and paper-based label materials grew by 5% in 2015 compared to 2014. UPMRaflatac is actively developing its product portfolio to generate growth and respond to market demand. Close partnerships with label printers and brand owners are an elementary part in building their brand and product appeal. In April, production started at the new labelstock coating line in Nowa Wies, Poland. The new line, part of UPM’s growth projects, was a timely investment and enables cost competitive growth in film products, a key strategic focus area. The strengthened offering in high value added films and special products, in parallel with increased production capacity and service capability, enabled UPMRaflatac to advance in the fast growing end-use segments such as wine and spirits. Developments in innovative products such as ultra-thin and conformable films, roll-fed shrink sleeves and solvent-free adhesive technology for challenging end-use applications further enhance growth opportunities. Such innovations also secured productivity gains and leaps forward in sustainability and product safety. Private consumption growth strengthened in 2015, further stimulated by the online retail trade. This increased self-adhesive label use in the packaging industry. UPM Raflatac was able to benefit from the favourablemarket environment due to its efficient production platformand distribution network as well as the new investments. UPM Raflatac’s sales increased by a strong 6% in developedmarkets in 2015 compared to 2014. In rapidly growing developing markets, fast urbanisation, population growth and higher disposable income are main drivers for increased opportunities. In 2015, these markets represented one third of UPMRaflatac’s sales and exchange rate adjusted sales grew by 5% compared to 2014. In Asia, growth continued albeit at a lower level than in the previous year. In Latin America, demand remained at the previous year’s level due to weaker economic growth in the region, particularly in Brazil. Robust demand growth continued in most of Eastern Europe. In Asia, UPM’s labelstock business has seen rapid growth in recent years. The capacity expansion of 50% in the Asian region, part of UPM’s growth investments, allows UPMRaflatac to respond to the increasing demand with improved quality,

Shrink sleeve labels are the rising trend in packaging

OUR DIRECTION • Profitable growth through organic growth, product portfolio development and synergistic acquisitions • Growth in high value added films and special label products • Expand presence in rapidly growing developing markets OUR STRENGTHs • Accurate supply chain and efficient delivery network • Modern strategically located and efficiently scalable production assets • Second largest supplier in most markets with global scale in R&D, quality development and technical know-how • Industry leader in sustainability and product safety

With shrink sleeve labels, UPM Raflatac is expanding its business from self-adhesive label materials to a new product area. Shrink sleeves do not contain any adhesive, but are shrunk tightly around products using hot steam. The UPM Raflatac RafShrink shrink sleeve films have primarily been designed for the beverage industry where production volumes are high. The shrinkage properties of these film labels are essential to its functionality. “Due to UPM innovations, the shrinkage properties of our materials are excellent compared to other similar polyolefin films. Our products have also high clarity and low haze, which ensures sharp images with vibrant colours,” Erkki Nyberg, Director, Shrink Sleeve Films, UPM Raflatac explains.

service and cost competitiveness in the long term. Amaterial improvement in cost efficiency was already achieved in fact in 2015. The new coating line in Changshu, China, completed in June 2015, machine investments in Changshu andMalaysia and terminal investments in China andMexico significantly enhance themanufacturing network and local service in these rapidly growing developingmarkets. Stakeholder demand in sustainability and product safety issues is growing in all markets offering new opportunities for value creating partnerships. In 2015, UPM Raflatac had multiple stakeholder initiatives with customers, end-users, industry associations and the environmental organisationWWF in Poland and South Africa. Markets and drivers • In 2015, global demand for label materials is estimated to have increased by 4-5% compared to the previous year. • The global label materials market has a sustained robust growth outlook, evidenced by private consumption forecasts for branded and packaged goods. • Thanks to its versatility and brand appeal, self-adhesive labelling as a technology is increasing its market share among labelling solutions. • The growth of the online retail trade is increasing label use for packaging and logistics. Stricter legislation, especially in food labelling, regarding product content and authenti- cation is also rising demand for self-adhesive labels. • Growth rates are strongest in developing markets, thanks to urbanisation, an expanding middle class and increasing income levels. Demand is further supported by the rapid development of retailers, distributor networks and automated product labelling. • In the mature markets, in recent years growth has surpassed the private consumption growth and is mainly driven by product renewal, innovations and tailored solutions.

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

Operating profit *) EUR million

KEY FIGURES

125

2014

2015

100

1,409 1,248

Sales, EURm

75

80

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

102 581

530 15.1

50

ROCE excl. special items, %

17.6

2,894 2,847

Personnel on 31 Dec.

25

0

2013

2014

2015

*) excl. special items

UPM RAFLATAC value created

CAPITALS Capital light converting business Engaged high performing people Responsible sourcing Face paper Release paper Films Adhesives Silicones

OUTCOMES Safe and certified products Brand appeal Work safety Employment Recyclable products RafCycle – waste recycling concept ROCE

Self-Adhesive label- stock factories o o Modern o o Efficient o o Strategically located

Distribution and slitting network o o Optimised distribution and slitting network o o Efficient and responsive

Sales and Services o o Loyal relationships o o Global scale o o Technical know-how

CUSTOMERs Label printers

LABEL USING INDUSTRIES Home & Personal care Food & Beverage Retail

END USES

A4 and cut-size Pharmaceutical Transport & Logistics Durables Tyres

New concepts and products, sustainability through the lifecycle

contents UPM Annual Report 2015 25

UPM Annual Report 2015 26