UPM annual report 2015

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UPM Annual Report 2015 26
contents
UPM Annual Report 2015 25
Business performance
Operating profit increased because of higher sales margins partly resulting from
improved operational efficiency and higher delivery volumes. Fixed costs increased.
Exchange rate adjusted sales grew by 6% in 2015 compared to 2014. Return on capital
employed increased for the second year in a row and came close to the long-term
target.
Business development
UPMRaflatac’s performance improved in all geographical regions thanks to efficiency
improving measures and timely growth investments. Delivery volumes improved
above all in Europe, UPMRaflatac’s largest market.
Solid progress in 2015 was in part a result of successful product portfolio develop-
ment, particularly in film and special products. Exchange rate adjusted sales of films
and special label products grew by 7% and paper-based label materials grew by 5% in
2015 compared to 2014.
UPMRaflatac is actively developing its product portfolio to generate growth and
respond to market demand. Close partnerships with label printers and brand owners
are an elementary part in building their brand and product appeal.
In April, production started at the new labelstock coating line in Nowa Wies,
Poland. The new line, part of UPM’s growth projects, was a timely investment and
enables cost competitive growth in film products, a key strategic focus area. The
strengthened offering in high value added films and special products, in parallel with
increased production capacity and service capability, enabled UPMRaflatac to
advance in the fast growing end-use segments such as wine and spirits.
Developments in innovative products such as ultra-thin and conformable films,
roll-fed shrink sleeves and solvent-free adhesive technology for challenging end-use
applications further enhance growth opportunities. Such innovations also secured
productivity gains and leaps forward in sustainability and product safety.
Private consumption growth strengthened in 2015, further stimulated by the online
retail trade. This increased self-adhesive label use in the packaging industry. UPM
Raflatac was able to benefit from the favourablemarket environment due to its efficient
production platformand distribution network as well as the new investments. UPM
Raflatac’s sales increased by a strong 6% in developedmarkets in 2015 compared to 2014.
In rapidly growing developing markets, fast urbanisation, population growth and
higher disposable income are main drivers for increased opportunities. In 2015, these
markets represented one third of UPMRaflatac’s sales and exchange rate adjusted
sales grew by 5% compared to 2014. In Asia, growth continued albeit at a lower level
than in the previous year. In Latin America, demand remained at the previous year’s
level due to weaker economic growth in the region, particularly in Brazil. Robust
demand growth continued in most of Eastern Europe.
In Asia, UPM’s labelstock business has seen rapid growth in recent years. The
capacity expansion of 50% in the Asian region, part of UPM’s growth investments,
allows UPMRaflatac to respond to the increasing demand with improved quality,
OUR DIRECTION
• Profitable growth through organic
growth, product portfolio development
and synergistic acquisitions
• Growth in high value added films and
special label products
• Expand presence in rapidly growing
developing markets
OUR STRENGTHs
• Accurate supply chain and efficient
delivery network
• Modern strategically located and
efficiently scalable production assets
• Second largest supplier in most markets
with global scale in R&D, quality
development and technical know-how
• Industry leader in sustainability and
product safety
KEY FIGURES
2015 2014
Sales, EURm 1,409 1,248
Operating profit excl. special items, EURm 102 80
Capital employed (average), EURm 581 530
ROCE excl. special items, % 17.6 15.1
Personnel on 31 Dec. 2,894 2,847
UPM RAFLATAC value created
CAPITALS
Capital light
converting business
Engaged high
performing people
Responsible sourcing
Face paper
Release paper
Films
Adhesives
Silicones
OUTCOMES
Safe and certified
products
Brand appeal
Work safety
Employment
Recyclable products
RafCycle – waste
recycling concept
ROCE
IN BRIEF STRATEGY BUSINESSES GOVERNANCE STAKEHOLDERS ACCOUNTS
service and cost competitiveness in the long term. Amaterial improvement in cost efficiency
was already achieved in fact in 2015.
The new coating line in Changshu, China, completed in June 2015, machine investments in
Changshu andMalaysia and terminal investments in China andMexico significantly enhance
themanufacturing network and local service in these rapidly growing developingmarkets.
Stakeholder demand in sustainability and product safety issues is growing in all markets
offering new opportunities for value creating partnerships. In 2015, UPM Raflatac had
multiple stakeholder initiatives with customers, end-users, industry associations and
the environmental organisationWWF in Poland and South Africa.
Markets and drivers
• In 2015, global demand for label materials is estimated to have increased by 4-5%
compared to the previous year.
• The global label materials market has a sustained robust growth outlook, evidenced
by private consumption forecasts for branded and packaged goods.
• Thanks to its versatility and brand appeal, self-adhesive labelling as a technology is
increasing its market share among labelling solutions.
• The growth of the online retail trade is increasing label use for packaging and logistics.
Stricter legislation, especially in food labelling, regarding product content and authenti-
cation is also rising demand for self-adhesive labels.
• Growth rates are strongest in developing markets, thanks to urbanisation, an expanding
middle class and increasing income levels. Demand is further supported by the rapid
development of retailers, distributor networks and automated product labelling.
• In the mature markets, in recent years growth has surpassed the private consumption
growth and is mainly driven by product renewal, innovations and tailored solutions.
Sales and Services
o o Loyal relationships
o o Global scale
o o Technical know-how
Self-Adhesive label-
stock factories
o o Modern
o o Efficient
o o Strategically located
Distribution and
slitting network
o o Optimised distribution
and slitting network
o o Efficient and
responsive
END USES
125
100
75
50
25
0
2015 2014 2013
*) excl. special items
Operating profit*)
EUR million
LABEL USING INDUSTRIES
Home & Personal care
Food & Beverage
Retail
A4 and cut-size
Pharmaceutical
Transport & Logistics
Durables
Tyres
CUSTOMERs
Label printers
New concepts and products, sustainability through the lifecycle
Shrink sleeve labels are the
rising trend in packaging
With shrink sleeve labels, UPM Raflatac is
expanding its business from self-adhesive label
materials to a new product area. Shrink sleeves
do not contain any adhesive, but are shrunk
tightly around products using hot steam.
The UPM Raflatac RafShrink shrink sleeve films
have primarily been designed for the beverage
industry where production volumes are high.
The shrinkage properties of these film labels
are essential to its functionality.
“Due to UPM innovations, the shrinkage
properties of our materials are excellent
compared to other similar polyolefin films.
Our products have also high clarity and low
haze, which ensures sharp images with
vibrant colours,” Erkki Nyberg, Director,
Shrink Sleeve Films, UPM Raflatac explains.
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Consistent progress UPM Raflatac