UPM Annual Report 2016

ACCOUNTS

UPM Annual Report 2016

100

101

In brief

Strategy

Businesses

Stakeholders

Governance

Accounts

CONTENTS

Research and development

Focus on circular economy

Innovations and R&D are at the forefront of creating and developing

new products that can be used to replace non-renewable materials

with renewable, recyclable and resource efficient low-carbon

alternatives.

The aim of UPM’s R&D programmes is to create new technologies

and products, provide support to and ensure the competitiveness of

its businesses.

By co-operating with selected value chain partners, UPM aims to

increase its speed, agility and effectiveness.

In 2016, UPM spent EUR 46 million (63 million) on research and

development work equating to 2.7% (5.3%) of UPM’s operating cash

flow. The focus was on new technologies and developing businesses.

On top of the direct R&D expenditure of approximately EUR 40

million (37 million), the figures include negative operating cash flow

and capital expenditure in developing businesses.

UPM has a global network of research centres to support both

new and existing businesses and their development goals.

Research projects

Circular economy is an integral part of UPM’s business. Resource

efficiency is at the core of our Biofore strategy. Our product

stewardship and eco-design approach covers the entire value chain

from the design stage to end products and their reuse.

UPM’s side stream efficiency research (SEFF) is looking for

solutions to better utilise the side streams of integrated pulp and

paper mills; sludge, ash, green liquor dregs, various rejects and waste

heat. The aim is to reduce costs and increase the value of side streams

by finding new business opportunities with partners.

Fertiliser development and nutrient recirculation is one of the

possible circular economy solutions. UPM established a joint project

with fertiliser and crop nutrition expert Yara Suomi Oy to develop

nutrient recycling. The project concentrates on the possibilities for

the agricultural reuse of nutrients retrieved from the sludge originating

from the pulp and paper mill’s effluent treatment plants and the ash

from the incineration process.

Other studies relate among others to ash product development for

construction applications and new ways to reuse green liquor dregs.

The results are also used in UPM’s Zero solid waste programme.

The initiative develops smart and sustainable solutions, in which

excess materials circulate and generate value.

UPM’s fibre ecosystem project aims to study new fibre processes

for enhanced product properties. The new product possibilities

address global megatrends and sustainability demands. The research

is done in co-operation with customers, partners and research

organisations along various value chains.

Wide-scale collaboration

UPM is one of the founding members of the industrial consortium,

part of the European Joint Undertaking on Bio-based Industries (BBI).

This Public Private Partnership (PPP) aims to trigger investments and

create a competitive market for bio-based products and materials.

For UPM, the PPP is an important funding element for speeding up

the implementation of future investments.

UPM is a shareholder in the Finnish CLIC Innovation Oy, which

focuses on bioeconomy and cleantech research. The cluster’s research

programmes focus on bioeconomy as well as energy and

environmental research, thus supporting UPM’s internal R&D activities.

In 2016, UPM received approximately EUR 1.0 million (1.4 million)

from Tekes (the Finnish Funding Agency for Innovation) for its research

projects. These projects were carried out in co-operation with

research institutes, universities and other companies.

UPM works together with a wide network of universities, research

institutes, technology suppliers and start-ups to develop new solutions

and get to the market faster, especially in new businesses.

UPM actively protects inventions and brands with intellectual

property rights. UPM manages and uses its patents, trademarks

and other intellectual property rights throughout the world. Protected

innovations and high level risk management is an integral part of

the business model throughout UPM. UPM is also actively seeking

partners and licensing opportunities to develop new technologies

and solutions for its customers.

Biocomposites create sustainable value through the fusion

of fibres and polymers

UPM Biocomposites develops, manufactures and sells high quality

composite products for a wide range of consumer and industrial

applications.

UPM ProFi Deck range is one of the leading composite decking

brands in Europe. Through patented recycling technology, UPM

Biocomposites recovers the cellulose fibres and polymers found in

label material waste and gives them a second life. Each square metre

of UPM ProFi Deck contains 10 kg of label waste.

UPM Formi is the engineered range of pure cellulose and virgin

polymer compounds suitable for various applications from furniture

to consumer electronics. Its carbon footprint is up to 50% lower

compared to traditional plastics.

Biochemicals offer a sustainable alternative

to fossil-based solutions

UPM Biochemicals offers and develops innovative, sustainable and

competitive wood-based biochemicals. It is currently focusing on

four product categories: chemical building blocks, lignin products,

biofibrils and biomedical products.

For example, bio-based chemical building blocks can be used to

replace oil-based chemicals in plastic production. Wood-based lignin

can for instance be used to manufacture bio-based resins to replace

fossil-based resins.

Biofibrils are cellulose-based micro and nanofibril products that

can be used for shaping and reinforcing different materials. They can

also be used in new biomedical applications. GrowDex

is a

proprietary hydrogel for cell culturing in medical research and other

applications.

UPM Biochemicals has already commercialised the first lignin

applications and biomedical products. It is actively developing and

testing industrial applications with its partners in order to create large

scale industrial concepts.

BUSINESS AREA

DESCRIPTION

UPM Biorefining

UPM Pulp

UPM Biofuels

In 2016, the focus was on improving the environmental performance and operational efficiency of

the mills as well as solid waste reduction through several internal and external joint research projects.

In Fray Bentos, Uruguay, the emphasis was in achieving a significant reduction in phosphorous

emissions through a new treatment system. In eucalyptus plantation operations, development work

concentrated on the tree breeding program and development of new eucalyptus clones.

In Finland, the focus was on developing wood sourcing and wood handling activities to reduce wood

consumption at the mills. UPM Pulp’s Technical Customer Service Support continued joint development

activities and enhanced cooperation with customers, mainly in Europe and China.

UPM BioVerno, the renewable diesel, was successfully distributed to the Finnish market throughout the

year.

The United Nations chose UPM Biofuels among great examples of action in its Sustainable

Development Goals for goal number 13, Climate Change. UPM Biofuels also won The Pulp and Paper

Industry’s Bio Strategy Award 2016.

Several new engine and fleet tests in off-road, heavy duty and marine use were conducted:

• Marine use: UPM BioVerno performed well in marine fleet engine tests and was found to represent a

high-quality fossil diesel substitute fuel. The non-existing sulphur and ash content had a positive influence

on SOx and PM emissions. CO

emissions were reduced up to 80 %. The tests were conducted by Dutch

GoodFuels Marine and Boskalis during the nature restoration project Marker Wadden.

• Urban buses: The laboratory tests and yearlong field tests were completed. UPM BioVerno produced

clearly lower emissions than fossil diesel in Euro III Class buses. The field tests were conducted in the

Helsinki region bus traffic with four identical Volvo Euro VI Class buses with efficient engines and low

emissions. UPM BioVerno functioned like the best diesel fuels in all blending ratios of 20, 50 and 100 %,

and the fuel consumption was identical. No fuel-related incidents occurred during the 400,000 kilometres

travelled.

The International Sustainability and Carbon Certification Scheme certification (ISCC PLUS) was extended

to cover all UPM Biofuels’ output streams from the Lappeenranta biorefinery. Now the wood-based fuels

and side-products can be utilised as certified feedstock e.g. in bioplastics production.

In August 2016, a separate Biofuels Development Team was established to extend UPM’s biofuel

production to new feedstock, processes, and business models.

UPM Energy

The focus was on improving the efficiency and cost competitiveness of hydro, nuclear and biomass based

energy production assets. To reach its target, Energy R&D participated in several research programs.

These programs improve the design and operations of UPM’s energy production systems in the

transforming energy markets.

UPM Raflatac

In standard paper products, the focus was on the re-engineering efforts for greater cost efficiency and

product quality.

Standard film development focused on thinner materials, improved production processes for

upgraded quality and a new range of conformable products.

In the special business area, the main emphasis was on developing high added-value products for

selected end-use segments and tailored solutions for specific customer needs.

UPM Specialty Papers

R&D supports businesses globally and backs up operations in China and Finland through development

activities in Changshu and Lappeenranta research centres.

The focus areas were in product development and operational efficiency. The “More with Biofore 2.0”

R&D programme was started at the end of the year to further improve top-notch energy efficiency and

the environmental performance of Changshu operations.

UPM Paper ENA

Key focus areas were:

• developing competitive products and product portfolios,

• providing top expertise in customer support,

• developing and implementing novel technologies and best practices for variable cost savings and

operational efficiency improvements.

R&D also supported the development of novel solutions for paper mills’ waste and side streams

management.

UPM Plywood

Key focus areas were:

• providing superior technical expertise and support for customers,

• creating competitive products within selected end-use areas,

• supporting the commercialisation of previously developed products and applications. WISA®

Bonded Floor Solution was showcased in IAA exhibition as a central element of German trailer

manufacturer Kögel’s commercial light trailer solution. The low weight of the vehicle reduces fuel

consumption + CO

emissions and enables higher payload in transportation.

New products were developed for various construction applications to complement the current portfolio.

R&D’s role in different businesses