UPM annual report 2015

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UPM Annual Report 2015 UPM Annual Report 2015 29 30
contents
Managing headwinds
OUR DIRECTION
• Improve profitability and maximise cash
flow through a simplified customer-
focused sales strategy
• Make use of optimisation opportunities
in the extensive low-cost operations
OUR STRENGTHs
• Extensive low-cost operations providing
continuous opportunities for optimisation
• Reliable supplier with consistently high
quality, excellent service as well as
a wide product palette
• Scale and skills in responsible sourcing
and manufacturing
• Environmental and technical expertise,
consistent product development
KEY FIGURES
2015 2014
Sales, EURm 5,056 5,284
Operating profit excl. special items, EURm 24 181
Capital employed (average), EURm 2,289 2,511
ROCE excl. special items, % 1.0 7.2
CF/CE, % 4.6 12.9
Personnel on 31 Dec. 9,472 10,467
UPM Paper ENA value created
CAPITALS
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
OUTCOMES
Safe and certified products
Work safety
Employment
Recyclable products
Renewable energy
Low emissions
Vitality of local communities
Responsible restructuring
Cash flow / Capital
employed
CUSTOMERS
Publishers
Printers
Retailers
Cataloguers
Advertisers
Brand owners
Merchants
Converters
END USE
Paper consulting meets
customers’ needs
In 2015, UPM piloted a new paper consulting
model to meet the cost efficiency needs of
customers. UPM experts work together with
publishers and review their entire range
of printed products to find a suitable UPM
paper grade for each magazine, advert,
brochure or other printed publication. The
aim is to decrease the number of different
paper grades and grammages used by
publishers.
The consulting service is based on trust and
good co-operation between UPM and the
customer. The consultation process does not
bind customers in any way, but the open
dialogue provides a good basis for growing
partnerships. UPM’s sales and technical
sales experts work closely together to
provide customers with the best possible
service.
As a result of the project, the publisher
achieves significant savings without
compromising the quality or the brand of
their printed products. UPM in turn is able
to optimise its production and make better
use of its paper machines. Everybody wins:
the publisher, the printing house, UPM,
and the readers.
Read more:
CUSTOMER-BASED BUSINESS UNITS
o o Customer focus and offerings
o o Wide product range
o o Reliable supplier
MAGAZINE PUBLISHING & ADVERTISING
NEWSPAPER PUBLISHING
MERCHANTS, HOME & OFFICE
PRODUCTION
o o Efficient and cost competitive production
o o Environmental and technical expertise
o o Focused R&D
o o Common operational
platform for production,
supply chain and sales
Sales
o o Market-based, global sales
o o World class technical service
o o Excellent customer service
200
150
100
50
0
2015 2014 2013
Operating profit *)
EUR million
*) excl. special items
Business performance
Operating profit decreased mainly due to higher euro-denominated pulp costs and
lower publication paper prices in Europe. The positive impact of favourable currency
development on export prices was moderated by a significant negative impact from
currency hedging. Cash flow return on capital employed decreased and fell short of
the long-term target.
Business development
The year 2015 was characterised by significant capacity reductions and measures to
manage the business in a continuously challenging market environment.
In November 2014, UPM announced plans to reduce approximately 800,000
tonnes of publication paper capacity of which 345,000 tonnes was newsprint and
460,000 tonnes was magazine paper capacity.
InMarch 2015, UPMPaper ENA closed down paper machine 2 at UPMKaukas
and paper machine 5 at UPM Jämsänkoski in Finland and, in February, paper
machine 1 at UPM Shotton in the UK. In June 2015, UPM closed down paper machine
3 at UPMChapelle Darblay in France.
Machine closures were vital given the challenging market conditions. Paper
demand decreased and sales margins were squeezed particularly due to lower news-
print prices and higher euro-denominated pulp costs. Overcapacity continued to
plague the European paper markets, especially during the first half of 2015.
With the machine closures, UPMPaper ENA adapted its production to meet
profitable customer demand and to improve operating rates of its remaining produc-
tion assets. UPMPaper ENA’s production strategy is based on interchangeability and
its extensive geographical coverage enabled machine closures without endangering
customer deliveries. From the business point of view, the measures taken were neces-
sary to improve profitability. The fixed cost reduction related to the capacity closures
was EUR 65 million.
A lean organisation based on strategic business units (SBUs) with responsibility
for profit and loss as well as continuous focus on efficiency enabled UPMPaper ENA
to improve its performance.
The SBU specific commercial strategies paid off, resulting in a strengthened mar-
ket position and customer loyalty. The next step in the digital service channel devel-
opment enables internet-based ordering of paper, making both customer’s and UPM
Paper ENA’s processes more streamlined. The paper consultancy model was piloted
with selected customers in Finland and Scandinavia.
Measures to reduce variable costs were successfully implemented with
meaningful savings achieved in energy, rawmaterials and logistics costs as well as
consumption.
The strengthened USD improved profitability on certain export markets. UPM is an
established supplier in the US and aims to enhance its customer relationships on themarket.
In November, UPM announced a study of a potential sale and conversion of UPM
Schwedt mill into liner production to LEIPA Georg Leinfelder GmbH.
Markets and drivers
• Graphic paper demand is driven by advertising spending in printed media and in tar-
geted 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 consump-
tion has been in structural decline in mature markets in Europe and North America
since 2007-08. Despite the overall decline, however, there are still growth opportuni-
ties in certain end-use and market segments.
• In Europe, demand for graphic papers decreased by 4% in 2015. The decline was
steeper in newsprint and magazine paper, while uncoated fine paper demand decline
was more moderate. Demand development by country also varies. The German market
is experiencing slower decline than, for example, the UK or the Nordic market.
• InNorth America, demand for magazine paper decreased by 7% in 2015. Also inNorth
America, the uncoated fine paper demand was holding up better than that of the other
grades.
IN BRIEF STRATEGY BUSINESSES GOVERNANCE STAKEHOLDERS ACCOUNTS
UPM Paper ENA