6-7 / 150
UPM Annual Report 2014
UPM Annual Report 2014
3
4
CONTENTS
UPM made good progress in
2014. We advanced both our
profitability improvement as
well as our growth projects.
Jussi Pesonen
President and CEO
Vision and values
Portfolio strategy
Business targets
Capital allocation
Code of Conduct
Responsibility targets
Top performance
Competitive advantage
Value creation
Shared value with stakeholders
License to operate
Business area strategies
Commercial excellence
Growth projects
Profitability improvement programmes
Innovation
DRIVING PERFORMANCE AND TRANSFORMATION
Less waste
Waste and sidestream utilisation
Efficient technologies
Less energy
Systematic energy management
Energy efficient processes and technologies
Less air emissions
Less water usage
Water management optimisation
Advanced technologies
Less effluent
More recycling
Efficient processes
Product lifetime optimisation
End-of-life systems
RESOURCE EFFICIENCY – UPM’S CORNERSTONE
More with Biofore describes how UPM aims
to create more with less in all its operations.
Have a look at the development we have
achieved over the last ten years.
–32%
Total amount of solid
waste to landfills
–25%
Process wastewater
volume per tonne of paper
+18%
Usage of
recovered paper
–20%
Electricity consumption
per tonne of paper
GROUP DIRECTION
IMPLEMENTATION IN BUSINESSES
OUTCOMES
A year of progress
The UPM transformation continues to ensure long-term sustainable value
creation. UPM’s structure of six separate businesses promotes top performance
as well as enables implementation of business portfolio changes.
The year was the first full year of operation for
UPM’s new business structure. The structure
– based on six business areas – brought clarity
and focus to implementing UPM’s agenda for
each of the businesses. It sharpened our opera-
tions in the customer interface. At the same
time, we were able to carry out the short term
profitability improvement programme in an
efficient manner. Target savings of EUR 200
million were achieved earlier than expected and
a new target of EUR 150 million was set for the
year 2015.
In addition the growth projects progressed
well during the year: The Lappeenranta biore-
finery started commercial production of
advanced renewable diesel in Finland in the
beginning of January 2015 – a historic mile-
stone after eight years of R&D, piloting and
construction.
The pulp expansion projects progressed in
Finland and in Uruguay, and investments were
made in labelling materials, woodfree speciality
paper and self-adhesive labels in China and
Poland. Through these projects, we target an
EBITDA impact of EUR 200 million. The
projects will be completed in 2015 and we
expect to see the first financial results of the
growth projects as the year progresses.
Good earnings
momentum in 2014
UPM showed good performance throughout
2014. Our operating profit improved by 24%
year-on-year thanks to the successful profit
improvement actions. Return on equity exclud-
ing special items was 8.3% for the full year and
cash flow per share was EUR 2.33.
I’m especially pleased with our excellent cash
flow. Following the consistently strong cash flow,
our balance sheet at the end of 2014 was the
strongest ever in the company’s history. We were
able to reduce our net debt by EUR 639 million
through the course of the year.
All six UPM businesses performed well in
2014 and four of them reached or exceeded their
long-term return targets.
UPM Plywood, UPM Energy and UPM
Paper Asia deserve special recognition for con-
sistent improvement and strong results. Thanks
to cost savings, UPM Paper ENA (Europe &
North America) also succeeded in improving
profitability and generating strong cash flow in
very difficult market conditions.
UPM Biorefining’s profitability was impact-
ed by lower hardwood pulp prices, but benefited
from improved efficiency in production. UPM
Raflatac showed volume growth and stable
results, but did not fully reach its market
potential.
UPM’s Board of Directors decided on a new
dividend policy targeting an attractive dividend
of 30–40% of UPM operating cash flow per
share. Based on this policy, the board’s proposal
for the 2014 dividend is EUR 0.70 per share.
The proposal indicates confidence in UPM’s
stable outlook and its ability to continue on its
journey of transformation.
Overall, the company performance has
progressed as planned and I would like to thank
all UPM employees for a good 2014.
Responsibility brings a competitive
advantage
Our target is sustainable operations that will
bring us competitive advantages and future
growth in various businesses.
To enhance transparency towards our stake-
holders, we use the Global Reporting Initiative
(GRI) reporting framework. With this report,
we also want to highlight the value our busi-
nesses create in terms of the economic, social
and environmental success of the company and
throughout value chain.
Furthermore in 2014, UPM’s consistent
work in the area of responsibility received
third-party recognition. The company was listed
in the Dow Jones Sustainability Indices for the
third time in a row. The companies that perform
better against sustainability criteria than their
competitors are selected in the indices.
2014 was also a year where UPM made
strong progress in its efforts to make the com-
pany a safer place to work. The Step Change in
Safety initiative has reduced the lost-time acci-
dent frequency by 70% in just three years. Every
UPM employee can take pride in creating a
safer working culture within UPM.
Outlook
UPM has a versatile business portfolio and
many growth businesses. The improved profit-
ability achieved in 2014 is expected to continue
in 2015 and we have potential to improve fur-
ther.
Our profitability is underpinned by the EUR
150 million profit improvement programme as
well as the first positive impacts from the com-
pany’s growth projects. In the beginning of the
year, profitability is affected by lower publica-
tion paper prices and lower electricity sales
prices. The current weakened euro and lower oil
price are supportive for the company’s earnings.
Our goal is to enhance the value of UPM
businesses further.
The versatile use of forest biomass, competi-
tiveness and being at the forefront of develop-
ments will also advance UPM’s Biofore strategy
in 2015.
With good performance in our businesses,
strong cash flow and leading balance sheet in
the industry, we are in a unique position to
simultaneously distribute an attractive divi-
dend, implement focused growth projects and
act on strategic opportunities.