UPM Annual Report 2017

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Businesses

In brief

Strategy

Stakeholders

Governance

Accounts

CONSUMERS PREFER LABELLED PRODUCTS Sales of labelling materials are increasing globally, and the growth is expected to continue to be especially rapid in Asia. Strong growth is driven by global megatrends. In particular, continuing urbanisation and higher consumer income levels in developing economies are increasing the consumption of labelling materials thanks to the rising demand for packaged products. Previously, people mainly purchased their food products in bulk from markets in China, for example. Today, a growing number of consumers buy packaged and labelled food products from the supermarket. In addition to consumer packaging, there is an increasing need for labels in the logistics chain, as this allows product batches to be better managed and identified. E-commerce, for which China has become the global driving force, is another important growth area. Ensuring that huge volumes of products are delivered to customers efficiently requires the use of labels to identify packages. The materials also have end uses in other industries, tapes and in medical and hygiene products, for example.

UPM Specialty Papers

Confidence delivered

OUR DIRECTION • In labelling materials, growth to maintain global leadership positioning through strengthened partnerships with customers • In office papers, growth as one of the most preferred office paper suppliers in Asia • Widen product offering in specialities and through new product development OUR STRENGTHS • Strong market position, competitive products and world-class assets • Extensive experience in high-quality release liners and face papers • Office papers in Asia Pacific with extensive distribution network and strong brands in China • Reliable supplier with exceptional customer service globally • Recognised industry leader in sustainability and environmental excellence

Sales price and volume-driven profit improvement Profitability improved mainly due to higher sales prices, an improved product mix and higher release liner volumes, supported by the ramping up of the new production line at UPMChangshu, China. Pulp costs increased significantly but it was partly mitigated by continuous variable cost saving measures. Label and release paper demand increased globally, particularly in Asia. Growth picked up in office paper demand. Benefitting from local presence and global reach The new speciality paper machine at UPMChangshu, China, has strengthened UPM’s labelling materials positioning in the Asia-Pacific region. Shorter lead times, improved local cost efficiency, consistency in the quality of the products and services, and reliability of customer deliveries have allowed UPM to take a significant share of the fast- growing Asian labelling materials market. The new line provides a competitive platform for strengthening partnerships with customers further. The new line has also improved the production flexibility and enabled growth in the European and North American markets. The brand promise ‘Confidence delivered’ represents UPM Specialty Papers’ consistency in the quality of its products, services and performance. Several opportunities for future growth UPM Specialty Papers has attractive growth opportunities through its existing product offering and production assets. The plan is to develop the more value-added speciality product segments while allowing for a more selective approach in slow growth segments where competition is intense. UPM Specialty Papers seeks growth in labelling materials by reinforcing its position in a wider range of end uses. With a broader product offering and through new product development there are attractive growth opportunities in converting applications and packaging papers. Demand for office paper in Asia continues to grow. In January 2018, UPM announced that it will expand release base paper capacity by rebuilding a calender at UPM Jämsänkoski mill in Finland. The additional capacity of approximately 40,000 tonnes will be available in the fourth quarter of 2018. In addition, UPMwill conduct a feasibility study on the conversion of the fine paper machine PM2 at Nordland Papier in Germany into release liner production. The study is planned to be completed during the first half of 2018. Recognised industry leader in sustainability UPM Specialty Papers’ products comply with the most demanding responsibility criteria in the industry, including ethical and social aspects. Thanks to its environmental excellence at the UPMChangshu mill, UPM enjoys a high level of recognition in China. UPM is committed to only sourcing rawmaterials from suppliers who demonstrate high standards of responsibility. UPM's paper is safe to use throughout its entire product lifecycle. In 2017, UPM developed high-quality release liner made partly of recycled fibres as customers such as self-adhesive label manufacturers and brand owners look for sustainable solutions (read more on page 73). In 2017, UPM Specialty Papers introduced UPM’s Responsible Fibre™ trademark to Asian markets. The trademark combines UPM's environmental and social responsibility criteria into one entity which is adhered to throughout the product lifecycle.