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UPM Annual Report 2016
UPM Annual Report 2016
16
17
Businesses
Stakeholders
Governance
Accounts
UPM renewed its long-term
financial targets
UPM as an investment
In brief
Strategy
IN THE NEW TARGETS:
•
the business area return targets and
the comparable ROE target have been
increased.
•
comparable EBIT growth has been
introduced as a new group-level target
•
a new financial policy on leverage based
on net debt/EBITDA has been introduced
•
the cash flow-based dividend policy
remains unchanged
Business area long-term return targets
increased
At the business area level, UPM targets top relative
performance in their respective markets compared
with key peers. UPMhas increased the long-term
return targets (below) for five of the six business
areas. The new return targets reflect UPM’s
increased ambition for business performance over
business and investment cycles.
Group earnings growth
On the group level, UPM introduced a new target.
UPM aims to grow its comparable EBIT over the
long term. In 2016, comparable EBIT increased by
25% to EUR 1,143 million (916 million).
UPM aims to grow its businesses with strong
long-term fundamentals. Earnings growth
is prioritised over top-line growth. UPMwill
invest in projects with attractive and sustainable
returns, supported by a clear competitive
advantage. The company also aims to capture
opportunities to develop its business and product
mix and further improve its cost competitiveness.
Efficient capital structure and
return on equity
UPM aims to maintain a strong balance sheet.
Investment grade rating is an important element
in UPM’s financing strategy. UPM’s new financial
policy on leverage is based on net debt/EBITDA
ratio of approximately 2 times or less. In 2016, net
debt/EBITDA was 0.73 times.
The previous maximum gearing limit of 90%
has been discontinued as redundant. At the end
of 2016, gearing ratio was 14%.
UPMhas increased its ROE target, now
aiming for a 10% return on equity. ROE also takes
into account the financing, taxation and capital
structure of the group. In 2016, comparable ROE
was 10.9%.
The previous target was variable: 5 percentage
points over a ten-year risk-free investment such
as the Finnish government’s euro-denominated
bonds. At the end of 2016, the minimum target for
return on equity, as defined above, was 5.3%.
UPM has achieved a clear improvement in the financial performance
since adopting the current business model of six separate businesses
in 2013. With renewed long-term financial targets, UPM aims higher.
5-YEAR SHARE PERFORMANCE AND VALUATION MULTIPLES
2016
2015 2014 2013 2012
Share price at 31 Dec, EUR
23.34
17.23 13.62 12.28 8.81
Comparable EPS, EUR
1)
1.65
1.38 1.20 0.91 0.74
Dividend per share, EUR
0.95
*)
0.75
0.70 0.60 0.60
Operating cash flow per share, EUR
3.16
2.22 2.33 1.39 1.98
Effective dividend yield, %
4.1
4.4
5.1
4.9
6.8
P/E ratio
14.1
10.0 14.2 19.5
neg.
P/BV ratio
2)
1.51
1.16 0.97 0.87 0.62
EV/EBITDA ratio
3
)
8.7
8.4
7.5
8.3
6.0
Market capitalisation, EUR million
12,452
9,192
7,266 6,497 4,633
*)
2016: Board’s proposal
1)
Comparable EPS for 2014-2016; EPS, excl. special items for 2012-2013
2)
P/BV ratio = Share price at 31.12./Equity per share
3)
EV/EBITDA ratio = (Market capitalisation + Net debt)/EBITDA
14 15 16
13
6.9 6.5
6.7
5.0
ROCE %*
)
UPM Energy***
)
*
)
ROCE % = Return of capital employed excluding items affecting comparability.
**
)
Free cash flow after investing activities (investments and/or divestments) and restructuring costs.
***
)
UPM Energy assets valued at fair value.
■
Long-term return target
■
Old target
14 15 16
13
7.6
10.6
14.6
12.6
ROCE %*
)
UPM Biorefining
■
Long-term return target
■
Old target
14 15 16
13
12.6
9.1
5.5
12.1
UPM Specialty Papers
■
Long-term return target
■
Old target
ROCE %*
)
14 15 16
13
12.9
4.6
4.7
31.0
FCF/CE %**
)
UPM Paper ENA
■
Long-term return target
■
Old target
14 15 16
13
16.5
7.3
20.9
22.6
UPM Plywood
ROCE %*
)
■
Long-term return target
■
Old target
14 15 16
13
15.0
14.1
17.6
25.5
UPM Raflatac
ROCE %*
)
■
Long-term return target
■
Old target
12 13 14 15 16
11
Comparable figures for
2014–2016, excluding special
items for earlier years
EURm
Comparable EBIT
1,200
1,000
800
600
400
200
0
Target: EBIT growth
12 13 14 15 16
11
4,500
3,750
3,000
2,250
1,500
750
0
3.0
2.5
2.0
1.5
1.0
0.5
0
■
Net debt
EBITDA (x)
EURm
Net debt and leverage
Policy:
≤
2x
16
12 13 14 15
11
1.0
0.8
0.6
0.4
0.2
0
100
80
60
40
20
0
% of operating cash flow
per share
%
EUR per share
Cash flow-based dividend
0.95
12 13 14 15 16
11
12
10
8
6
4
2
0
%
Comparable ROE
Target: 10%
2016
Comparable
return on equity
10.9%
Business area returns and long-term targets
Strong cash flow
enables focused growth invest
ments, focused M&A, new business development
as well as attractive dividends to UPM shareholders.
An industry-leading balance sheet
mitigates
risks and enables UPM to accelerate its business
portfolio transformation, when the opportunity
and timing are right.
Responsibility is good business:
Good governance,
industry-leading environmental performance,
responsible sourcing and a safe working environment
are important sources of competitive advantage.
Attractive dividend
UPM aims to pay an attractive
dividend, 30-40% of the company’s annual operating
cash flow per share.
UPM is committed to continuous improvement in
its financial, social and environmental performance.
At the business area level, UPM aims for top performance
in its respective markets compared with peers.
UPM invests to expand its businesses with strong long-term
fundamentals for growth and profitability. The company has
clear long-term return targets for its businesses. Earnings
growth is prioritised over top-line growth.
1
PERFORMANCE
3
PORTFOLIO
2
GROWTH
4
INNOVATION
UPM AIMS TO INCREASE LONG-TERM SHAREHOLDER VALUE
UPM’s expertise in renewable and recyclable materials,
low-emission energy and resource efficiency is the key to
developing new, sustainable businesses with high added
value and unique competitive advantage.
Increasing the share of attractive growth businesses
improves the company’s long-term profitability and
boosts the value of the shares.
Dividend proposal
+27%
Share price 2016
+35%
CONTENTS