UPM annual report 2014

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UPM Annual Report 2014 UPM Annual Report 2014 25 26
LESS IS MORE IN PAPER
UPM has launched a new high quality and competitive printing paper grade, UPM Valor,
designed especially for magazine publishers and brand owners. It is a prime example of
how UPM’s papers add value for customers by providing savings in mailing and delivery
costs without the need to compromise on quality.
UPM Valor matches the quality and the properties of the reference paper grades but is up
to 15% lighter in basis weight. Since fewer raw materials are needed, UPM Valor supports
the sustainability of customer operations with a smaller environmental footprint throughout
the value chain.
After the launch in 2014, several international brand owners such as Spiegel, IKEA and
Finnair have integrated UPM Valor into their paper portfolio. As an example, the weight loss
achieved by Finnair’s in-flight magazine means that the airline company will save on fuel costs.
Read more:
Significant
improvement in profitability
Business performance
Operating profit increased due to signifi-
cantly lower variable and fixed costs, driven
to a large extent by the profit improvement
programmes, more than offsetting the
negative impact from sales prices and deliv-
ery volumes.
Business development
2014 was characterised by the decision in 2013
to reorganise the business into a customer-based
structure with differentiated strategies. UPM
Paper ENA was organised into three customer-
based Strategic Business Units (SBU); Magazine
Publishing & Advertising; Newspaper Publish-
ing; Merchants, Home & Office.
The reorganisation sharpened operational
focus in each strategic business unit, facilitating
management of the business segments towards
differentiated target setting with faster decision
making. UPM Paper ENA’s leaner structure and
decentralised profit responsibility also sparked
agility and engagement within the organisation,
laying the foundations for further improvements
in production and supply chain management as
well as customer focus.
UPM Paper ENA also successfully launched
new paper products, e.g. UPM Valor, UPM
Impresse and UPM ReCat.
In the first half of 2014, UPM Paper ENA
implemented measures relating to the first
profit improvement programme (announced
in August 2013). Fixed costs were reduced
through focusing, de-layering, increased scal-
ability and simplification of working proce-
dures. Variable costs were reduced in sourcing,
logistics and manufacturing. Thanks to success-
ful implementation of the profit improvement
programme, combined with some tailwind from
lower input costs, UPM Paper ENA achieved
a clear turnaround in profitability.
Market conditions remained challenging
in 2014 although the decline in paper demand
moderated somewhat, and the price slide lev-
elled off. Nevertheless, overcapacity continued
to plague the European paper markets. The
SALES
o o Market-based, global sales
o o World class technical service
o o Excellent customer service
PRODUCTION
o o Efficient and cost competitive production
o o Environmental and technical expertise
o o Focused R&D
UPM PAPER ENA VALUE CREATED
Capital intensive process industry
Engaged high performing people
Community involvement and local
presence
Responsible sourcing
Virgin fibre from certified sources
Recycled fibre
Chemical pulp with full traceability
Sustainable raw materials and
energy
Safe and certified products
Work safety
Employment
Recyclable products
Renewable energy
Low emissions
Vitality of local communities
Responsible restructuring
Cash flow / Capital
employed
CUSTOMERS CAPITALS OUTCOMES
Publishers
Printers
Retailers
Cataloguers
Advertisers
Brand owners
Merchants
Converters
o o Customer focus and offerings
o o Wide product range
o o Reliable supplier
o o Common operational platform for production, supply chain and sales
MAGAZINE PUBLISHING & ADVERTISING
NEWSPAPER PUBLISHING
MERCHANTS, HOME & OFFICE
outlook for growth in the European economy
deteriorated in the second half of the year
and contributed to the challenging market
environment.
In November, UPM announced plans
to reduce 345,000 tonnes of newsprint and
460,000 tonnes of magazine paper capacity in
Europe in 2015. With the closures, UPM aims
to adapt its production to meet profitable
customer demand and ensure efficient use of its
remaining production capacity without endan-
gering customer deliveries. The fixed cost reduc-
tion related to the capacity closures is expected
to be EUR 55 million and is part of the group-
wide EUR 150 million profit improvement
programme.
The UPM Docelles paper mill in France
was closed in January 2014. The mill produced
160,000 tonnes of uncoated woodfree papers
annually.
Markets and drivers
• Graphic paper demand is driven by
advertising spending in printed media and in
targeted and unaddressed direct marketing,
magazine and newspaper circulations and
titles, as well as home and office paper
consumption.
• Following the increased use of digital media
in the consumer market, paper consumption
is in structural decline in mature markets
in Europe and North America. Despite
the overall decline however there are still
growth opportunities in certain end uses
and markets.
• In Europe, demand for graphic papers
decreased by 3% in 2014. The decline was
steeper in newsprint and magazine paper,
while fine paper demand remained stable.
• In North America, demand for magazine
paper decreased by 3% in 2014.
OUR DIRECTION
• Improve profitability and
maximise cash flow through
simplified customer-focused sales
strategy
• Make use of optimisation
opportunities in the large low-cost
production platform
OUR STRENGTHS
• Large low-cost operating platform
providing continuous opportunities for
optimisation
• Reliable supplier with consistently high
quality, excellent service as well as wide
product palette
• Scale and skills in responsible sourcing
and manufacturing
• Environmental and technical expertise,
consistent product development
CUSTOMER-BASED BUSINESS UNITS END USE
UPM Paper ENA
(Europe & North America)
KEY FIGURES
2014 2013
Sales, EURm 5,284 5,560
Operating profit excl. special items, EURm 181 0
Capital employed (average), EURm 2,511 2,672
ROCE excl. special items, % 7.2 0.0
CF/CE % 12.9 4.6
Personnel on 31 Dec. 10,467 11,081
200
150
100
50
0
-50
2014 2013 2012
*) excl. special items
Operating profit *)
EUR million
BUSINESSES 15–30
CONTENTS