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UPM Annual Report 2014
UPM Annual Report 2014
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10
CONTENTS
EVENTS IN 2014
22 January:
UPM closes down the
UPM Docelles fine paper mill in
France
28 February:
UPM proceeds
with the construction of the third
production unit at its Changshu mill
in China
28 February:
UPM announces its
EUR 160 million investment in the
Kymi pulp mill, Finland
3 April:
UPM Raflatac announces
its plans to increase labelstock
production capacity in China and
Malaysia
24 April:
UPM Raflatac announces
its plans to invest in new produc-
tion capacity in filmic labelstock
and restructure sheet labelstock
businesses in Europe
12 June:
The UPM Fray Bentos
pulp mill completes the production
permitting process in Uruguay and
increases its production level to
meet the mill capacity
UPM Biofore strategy
in action 2014
Business area
Strategic targets
Actions in 2014
Actions planned for 2015 *)
UPM BIOREFINING
Grow in cost competitive, high quality pulp
and advanced biofuels
Efficient sawn timber business
Utilise synergies and increase added value
in biorefining
Capacity expansions completed in UPM Pietarsaari
and UPM Fray Bentos pulp mills, investment started
at UPM Kymi
2
Lappeenranta biorefinery started production
2
4
Reduction in variable costs
1
Improvement in efficiency and profitability in Timber
1
Complete the expansion in UPM Kymi
2
Ramp up production expansion
at the UPM Pietarsaari and UPM Fray
2
Bentos pulp mills
Ramp up and optimise production
in the UPM Lappeenranta
biorefinery
2
4
Participate in the EUR 150 million
profit improvement programme
1
UPM ENERGY
Profitable growth in Nordic low-emission
power generation
Value creation in physical trading and
hedging
Successful hedging and physical trading and
reduction in costs
1
Continued OL3 construction
2
Continued the refurbishment of hydropower plants
2
Continue OL3 construction and
refurbishment of hydropower plants
2
Participate in the EUR 150 million
profit improvement programme
1
UPM RAFLATAC
Profitable growth in higher value films and
specialty labels and expand presence in
developing markets
Reduction in fixed costs through optimisation
of the production platform
1
Coating operations were closed in Spain
and in Australia and production was relocated
1
Investment projects to increase production capacity
in China, Malaysia and Poland started
2
New slitting and distribution terminal
opened in Mexico
2
Complete the investment projects
in China, Malaysia and Poland
2
Plan new slitting and distribution
terminals in growth markets
2
Global development in R&D
2
Participate in the EUR 150 million
profit improvement programme
1
UPM PAPER ASIA
Profitable growth in labelling materials
globally and in high quality office papers in
Asia
Construction of the third production unit
started at UPM Changshu
2
Reduction in variable and fixed costs
1
Complete the investment project
at UPM Changshu in China
2
Participate in the EUR 150 million
profit improvement programme
1
UPM PAPER ENA
Improve profitability and maximise cash flow
through cost competitiveness and customer
focus
Significant reduction in variable and fixed costs
1
Simplified, customer segment-based organisation
1
Closure of the UPM Docelles paper mill
1
Participate in the EUR 150 million
profit improvement programme
1
Close down four paper machines
in Europe in early 2015
1
UPM PLYWOOD
Profitable growth in selected customer
segments through operational excellence
and customer service
Reduction in variable and fixed costs
1
Participate in the EUR 150 million
profit improvement programme
1
WOOD
SOURCING AND FORESTRY
Secure competitive biomass
Reduction in wood costs
1
Participate in the EUR 150 million
profit improvement programme
1
BUSINESS PORTFOLIO
DEVELOPMENT AND VALUE
CREATION
Grow with synergistic acquisitions
Simplify with best value realisation for UPM
Studied M&A opportunities, no significant
transactions materialised
3
Sold 51,000 hectares of forest land in Finland
3
Sold all 7,100 hectares of forest land in the UK
3
Continue to look for value
enhancing M&A opportunities
3
Continue forest land sales
3
NEW BUSINESS
DEVELOPMENT
UPM Biocomposites: business creation in
UPM Formi and continued growth in UPM
ProFi biocomposites
UPM Biochemicals: further application
development and piloting of biofibrils and
biochemicals
Commercialise technology and IPR
innovations for core-related activities
Biofuels started as a business within
UPM Biorefining
2
4
Partnership with Renmatix to test Renmatix’
Plantrose™ process in biochemicals
4
Development of lignin-based products
4
Food freshness indicator technology
commercialised to Indicatorium Ltd.
4
Continue to expand UPM ProFi product
portfolio. Continue to commercialise
UPM Formi
4
Continue to develop biochemicals
4
Continue studying technology and IPR
commercialisation possibilities
4
New business structure
facilitates UPM transformation
and performance
2014 was the first full year of operation for
UPM’s new business structure. The company
consists of six business areas: UPM Biorefining,
UPM Energy, UPM Raflatac, UPM Paper
Asia, UPM Paper ENA (Europe & North
America) and UPM Plywood. Other operations
include UPM’s wood sourcing and forestry and
the UPM Biocomposites and UPM Biochemi-
cals business units. Each business area has a
defined strategic role and clear targets, outlined
in the adjacent table.
2014 was a year of progress and showed that
the new organisation is capable of delivering
results. All of the businesses and group func-
tions took part in the EUR 200 million profit
improvement programme, launched in August
2013. The programme achieved its targets in Q3
2014, ahead of schedule. At that time, further
improvement potential was identified and the
company launched a second EUR 150 million
profit improvement programme in November
2014.
Organic growth projects progressed in UPM
Biorefining, UPM Raflatac, UPM Paper Asia
and UPM Energy. Most of the current projects
are scheduled for completion by the end of
2015.
Business portfolio development progressed
through organic growth projects and continued
forest land sales. M&A opportunities were also
studied during the year, but no significant trans-
actions materialised.
New business development reached a signifi-
cant milestone when UPM Biofuels started its
first biorefinery producing wood-based renew-
able diesel as part of the UPM Biorefining
business area.
Focus on responsibility
and leadership
Corporate responsibility is an integral part of
all our operations and is seen as a source of
competitive advantage. UPM is strongly com-
mitted to continuous improvement in economic,
social and environmental performance. Over the
past few years, UPM has focused heavily on
improving safety at work and on further improv-
ing the environmental performance of its pro-
duction units. In 2014, special attention was also
paid to responsible sourcing.
Achieving our ambitious targets requires
high performing people and teams to drive
business transformation. This also highlights the
importance of being an attractive employer with
inspiring and empowering leaders who offer
diverse opportunities to perform and grow. To
ensure the success of our businesses and the
people who make it happen, UPM’s manage-
ment is placing particular emphasis on perfor-
mance orientation and employee engagement.
16 June:
UPM signs a sales agree-
ment for the distribution of UPM
BioVerno renewable diesel with
North European Oil Trade Oy
(NEOT)
11 September:
UPM is listed as the
industry leader in the global Dow
Jones Sustainability Index
25 September:
The Government of
Finland decides not to grant an ex-
tension to the decision-in-principle
for the Olkiluoto 4 nuclear power
plant unit
13 November:
UPM introduces a
new profit improvement target of
EUR 150 million — UPM Paper
ENA plans to reduce 800,000
tonnes of publication paper capac-
ity in 2015
*)
not a complete list
Read more on UPM’s responsible sourcing (p. 40)
and safety improvement (p. 44).
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BUSINESS PORTFOLIO DEVELOPMENT
AND VALUE CREATION
NEW BUSINESS DEVELOPMENT
FOR LONG-TERM GROWTH
MID-TERM FOCUSED
GROWTH PROJECTS
SHORT TERM PROFITABILITY
PROGRAMMES