UPM annual report 2015

IN BRIEF

STRATEGY

BUSINESSES

STAKEHOLDERS

GOVERNANCE

ACCOUNTS

Grow with Biofore

UPM’s Biofore strategy includes short-term actions to drive performance, mid-term projects to capture high-return growth opportunities and mid- to long-term development work to create new, high value-added growth. The company is developing its business portfolio in order to increase its value and to create growth.

UPM’s strategic focus areas

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performance

PORTFOLIO

innovation

growth

Continuous improvement in performance UPM implements profit improvement actions in all businesses to further improve cost competitiveness and advance towards top performance in the businesses’ respec- tive markets. UPM is committed to continu- ous improvement in its financial, social and environmental performance. • The profit improvement programme, launched in November 2014, exceeded its target of EUR 150 million of annualised fixed and variable cost savings by 10% in Q4 2015 • The programme also included the permanent closure of four publication paper machines in Europe • UPM aims to further improve its resource efficiency and drive down variable and fixed costs in 2016, too • Good governance, industry leading envi- ronmental performance, responsible sourcing and a safe working environment are important sources of competitive advantage

Business portfolio development and value creation UPM aims to develop its business portfolio to increase its value, long-term profitability and growth outlook. The target is to increase the share of highly profitable businesses with good fundamentals for growth. • Top performance: UPM targets top relative performance in each business in their respective markets • Grow well performing businesses: focused, high-return growth investments and synergistic mergers and acquisitions • Simplify: best value realisation for UPM • Consolidation in the European paper market without allocating more capital • Ability to take action: strong balance sheet and releasing capital

New business and product development for long-term growth UPM is developing new businesses based on its extensive know-how and strong position in the forest biomass sourcing and processing value chain. Ecodesign represents business opportuni- ties with large target markets and high added value.

Focused growth projects UPM invests in focused, high-return projects to capture growth opportunities in its business portfolio. The company is investing EUR 770 million in 2013–2016 in the following growth projects, targeting an EBITDA impact of EUR 200 million when all the projects are fully opera- tional. • 10% (340,000 t) capacity increase in the existing pulp mills • Lappeenranta biorefinery and the start of the UPMBiofuels business • Labelling materials and speciality papers expansion in China • Increase in self-adhesive labelstock produc- tion capacity • Birch plywood capacity expansion in Estonia At the end of 2015, cumulative investments in the above projects totalled EUR 660million. In 2016, focus turns to reaping the benefits from these investments, as most of them are ramping up.

BIOFUELS Advanced renewable diesel suitable for all diesel engines BIOCOMPOSITES Renewable materials to replace oil-based materials e.g. in injection moulding BIOCHEMICALS Renewable performance chemicals and drop-in alternatives for oil-based chemicals

Product development in the current businesses is also an important source of competitive advantage and growth. All business areas aim to increase the value added for customers through product and service development.

Growth projects near completion – focus turns to reaping the benefits in 2016 and beyond

Pietarsaari pulp mill expansion 70,000 t

Fray Bentos pulp mill

LappeenranTa biorefinery 120 m litres of renewable diesel

Kymi pulp mill

Kaukas pulp mill efficiency

expansion 100,000 t

expansion 170,000 t

improvement, paper and pulp decoupling completed

Capex so far EUR 660m

Remaining capex EUR 110m

Q1 2015

Q2 2015

Q3 2015

Q4 2015

Q2 2014

Q3 2014

Q4 2014

Q1 2016

Q2 2016

Q3 2016

Q4 2016

UPM Paper Asia Changshu new speciality paper machine 360,000 t

UPM Plywood Otepää mill expansion to 90,000 m 3

UPM Raflatac 50% expansion in APAC, growth in filmic labelstock in Poland

contents

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UPM Annual Report 2015

UPM Annual Report 2015