UPM annual report 2015

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

Investing in growth

UPM Plywood

OUR DIRECTION • Profitable growth through customer- oriented service and operational excellence • Strengthen our market position in selected businesses by increasing value and service offering OUR STRENGTHs • Reliable supplier with consistent high quality • Superior customer service • Leading supplier in demanding end-use segments • Strongest brand in the market – WISA ®

Business performance Operating profit increased because of lower variable costs, partly driven by favourable currency development and improved cost efficiency. Delivery volumes increased. Return on capital employed increased, significantly exceeding the long-term target. Business development UPMPlywood’s performance improved further. Delivery volumes increased due to improved customer focus and customer-oriented approach, partly mitigating the negative impacts of increased competition of plywood imports fromRussia and South America. Improved production flexibility enabled UPMPlywood to respond to customer demand with increased production. Deliveries to demanding industrial end-use applications such as trailer manufacturers and LNG (liquefied natural gas) carriers increased. As a whole, construction activity in Europe remained subdued. In the area of road freight applications, UPMPlywood has provided expertise to customers’ product and production development introducing both economic and environmental benefits. UPMhas experienced rapid growth in the trailer segment in past years and in 2015, new customer agreements were also signed outside Europe. UPMPlywood has seen solid growth in the LNG segment in past years. WISA birch plywood is ideal material in LNG vessels due to its strength and stability at extremely low temperatures. Investment activity in the LNG industry is high and the outlook remains good. In April, UPM decided to expand its Otepää plywood mill in Estonia. The expan- sion will almost double the mill’s production to 90,000 m 3 per annum. The expansion increases UPMPlywood’s capability to deliver competitive high quality birch ply- wood to demanding end-use segments and serve key customer industries effectively. The investments in Otepää total to approximately EUR 40 million and will be com- pleted by the end of 2016. In 2015, UPMPlywood continued developing the thermoformable UPMGrada wood material. New products were launched with lower forming temperatures than before and improved form pressing process efficiency. UPMGrada is ecologically designed and safe for use, as the material is free from harmful compounds. In 2015, the distribution network including agents was expanded to cover the whole of Europe. The first mass production line using thermoformable UPMGrada wood material was started up at the Finnish furniture manufacturer Isku’s Lahti mill in Finland. In October, UPMPlywood started a programme to improve the cost competitive- ness of its Finnish birch plywood mills. Central elements of the programme are to increase production volumes at the UPM Savonlinna and Joensuu mills to reduce unit costs. At the UPM Jyväskylä mill production was streamlined and mill cleaning was outsourced.

UPM Grada cuts manufacturing time in half Finnish furniture manufacturer Isku began using UPM Grada wood material and managed to cut the manufacturing time of form-pressed components in half compared to the traditional manufacturing method. In order to be able to benefit from Grada technology, a new automated manufacturing line was constructed at the Isku factory in Lahti, Finland. The new line was taken into commercial use in September 2015. The line is used to manufacture components for chairs, tables and school furniture, for example. Essential time savings have been achieved by using industrial robots and other automated systems to carry out work that previously required a lot of manual labour. According to CEO Arto Tiitinen from Isku, the use of UPM Grada, a material developed and patented by UPM, will strengthen the furniture company’s position in the international furniture market. “In order to succeed in hard competition, top-class design is a must as well as taking a front runner position in applying new materials and techniques,” Tiitinen says. The unique properties of UPM Grada provide designers with entirely new opportunities for creating modern furniture. Designers appreciate the slenderness, durability and uniform quality of the easily mouldable material.

In November, UPMPlywood made a decision to curtail the production of softwood plywood at its Pellos mills in Finland during the end of 2015 and first half of 2016 due to increased imports of low-priced softwood plywood to Europe from South America. Markets and drivers • In 2015, plywood demand in Europe is estimated to have increased slightly. Demand grew in both industrial applications and construction-related end-use segments. • The plywood market in Europe was in balance during the first half of 2015. Low-priced imports increased over the course of the year, leading to price pressure in some product segments in the fourth quarter. • Plywood demand is driven by activity in the building and construction and furniture industries as well as industrial end-use segments such as transportation. • In the building and construction industry, wood material is increasingly used because it is a cost effective material and a renewable resource. • In the transportation industry, construction of LNG vessels is driven by global demand for LNG. Road transportation is growing for the benefit of trade, requiring environmen- tally sound trailer solutions.

Operating profit *) EUR million

75

60

45

30

15

0

2013

2014

2015

*) excl. special items

Read more: www.wisaplywood.com, www.upmgrada.com

KEY FIGURES

UPM Plywood value created

2015 2014

440

Sales, EURm

439

CAPITALS

OUTCOMES

PRODUCTION PLYWOOD MILLS (SPRUCE)

SALES 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

CUSTOMER INDUSTRIES Construction LNG shipbuilding Vehicle flooring Parquet Other industrial manufacturing

END USES

44

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

55

268

263

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

16.4

ROCE excl. special items, %

20.9

2,469 2,441

Personnel on 31 Dec.

PLYWOOD MILLS (BIRCH)

Employment Work safety Vitality of local communities Low emissions ROCE

VENEER MILL (SPRUCE)

Product and process development

contents

31

32

UPM Annual Report 2015

UPM Annual Report 2015