UPM Annual Report 2016

10-11 / 176

UPM Annual Report 2016 UPM Annual Report 2016 10 11
Businesses Stakeholders Governance Accounts In brief Strategy
Grow
with
Biofore
New sources for sustainable growth and competitiveness
UPM is developing new businesses based on its extensive know-how
and strong position in the forest biomass sourcing and processing
value chain. Ecodesign represents business opportunities with large
target markets and high added value.
BIOFUELS
• Advanced renewable diesel suitable for all diesel engines and
renewable naphtha that can be used as a gasoline component
BIOCOMPOSITES
• Renewable materials to replace oil-based materials e.g.
in injection moulding
BIOCHEMICALS
• Sustainable and competitive wood-based biochemicals with the
focus on chemical building blocks, lignin products, biofibrils and
biomedical products
Product, service and business model development in the current
businesses is also an important source of competitive advantage
and growth. All UPM businesses aim to increase the value added
for customers through product and service development.
Business portfolio development and value creation
UPM aims to increase long-term shareholder value by increasing
the value of each business and by developing the business portfolio,
organically or potentially through mergers and acquisitions. UPM’s
responsible operations and value chain lay the foundation for identifying
opportunities and avoiding and mitigating potential risks.
Developing each business
• Driving profitability, growth and cash flow
• Commercial strategies, focused growth investments, continuous
improvement programmes
Developing the business portfolio
• Increasing the share of businesses with strong long-term
fundamentals for profitability and growth
• Businesses with a sustainable competitive advantage
• Growth investments, synergistic M&A
Portfolio changes are possible if it would be the best way to increase
long-term shareholder value
Ability to take action: strong balance sheet mitigates risks and
presents strategic opportunities
Continuous improvement in performance
UPM is committed to continuous improvement in its financial,
social and environmental performance. Each business area targets
top relative performance in their respective markets.
• UPMhas group-wide continuous improvement programmes
for reducing variable costs, optimising maintenance and site
operations as well as releasing working capital
• Similarly, UPMhas continuous improvement programmes
for the health and safety of employees and contractors and
environmental performance
• The programmes continued to yield strong results in 2016:
variable and fixed costs decreased significantly. Lost-time
accident frequency continued to decrease, and resource
efficiency continued to improve. The work will continue in
2017 and beyond
• UPM aims for efficient use of its assets. In UPMPaper ENA,
this also means adjusting production capacity according to
customer demand
• UPM sees good governance, industry-leading environmental
performance, responsible sourcing and a safe working
environment as important sources of competitive advantage
UPM’s Biofore strategy includes continuous improvement programmes and short-term
actions to drive performance; mid-term growth projects as well as mid- to long-term
development work to create new, high value-added growth. UPM develops its business
portfolio in order to increase the long-term shareholder value.
UPM’s strategic
focus areas
Sustainable returns with focused growth projects
UPM aims to capture growth opportunities in its business portfolio.
The company invests in projects with attractive and sustainable returns,
supported by clear competitive advantage.
Projects already contributing: EUR 680 million investments, with
an EBITDA target of EUR 200 million. In 2016, UPM achieved 80% run-
rate of the target.
• UPMPietarsaari, UPMFray Bentos and UPMKymi pulpmill expansions
• UPMLappeenranta renewable diesel biorefinery
• UPMRaflatac label stock factory expansions in Asia Pacific region and
Poland
• UPMChangshu specialty paper machine
Projects under construction or at the beginning of ramp up:
EUR 225 million investments.
• UPMOtepää plywood mill expansion
• UPMKaukas and UPMKymi (second investment) pulp mill expansions
• UPMRaflatac label stock factory expansion in Poland
(second investment)
In Uruguay, UPM started discussions with the Government of Uruguay
regarding the development of logistics infrastructure in the country. Rail­
road and road connections are a critical challenge for establishing a large
scale industrial operation in the inland and connecting it to a deep sea port.
PERFORMANCE 1 GROWTH 2 PORTFOLIO 3 INNOVATION 4
CONTENTS