UPM Annual Report 2016

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UPM Annual Report 2016 UPM Annual Report 2016 34 35
In brief Strategy Stakeholders Governance Accounts Businesses
TRADEMARK FOR RESPONSIBLE FIBRE
“New Future” is the first range of papers
to carry the new “Responsible Fibre” trade-
mark adopted by UPM.
The new trademark innovatively combines
UPM’s environmental and social responsibility
into one cohesive philosophy, which is adhered
to throughout the product lifecycle. The criteria
cover the following four focus areas: climate,
water, biodiversity and social responsibility.
The trademark shows that the products carrying
the trademark comply with the industry’s most
demanding responsibility criteria.
At the same time, the branding on the
“New Future” product packages has been
given an attractive facelift. The technical
properties of the paper were also modified
to better meet today’s printing needs.
CONTENTS
OUR DIRECTION
• Maximise cash flow using differentiated commercial
strategies and disciplined performance management
• Make use of optimisation opportunities in the extensive
low-cost operations
OUR STRENGTHS
• Reliable supplier with consistently high quality,
excellent service as well as a wide product range
• Extensive low-cost operations providing continuous
opportunities for optimisation
• Scale and skills in responsible sourcing and
manufacturing
• Environmental and technical expertise, consistent
product development
DEMAND DRIVERS
• Advertising spend
• Role of paper in the marketing mix
• Publishers’ business model
• Reading habits
• Ways of working and learning
Significant
performance
improvement
UPM
Paper ENA
Business development
UPMPaper ENA’s systematic performance management enabled a
significant profitability improvement in 2016 despite the challenging market
environment. Measures such as stringent capacity management, cost
reduction and differentiated commercial strategies have been systematically
developed and implemented.
In 2016, UPMPaper ENA was able to reduce its variable costs resulting
in meaningful savings in energy, pulp and logistics costs. The savings were
realised partly due to ongoing profit improvement measures. Realised
currency hedges had a negative impact on profitability in the previous year.
The structural decline in demand of graphic papers in Europe continued.
The average price for UPM’s paper deliveries in euros decreased by 2% in 2016
compared to the previous year, partly impacted also by less favourable
development in markets outside the euro area. UPMPaper ENA’s deliveries
decreased by 4% compared to the previous year. This was offset by operational
efficiencies being on high levels and lower variable and fixed costs.
Cash flow was successfully released, primarily as a result of the improved
profitability, but also due to asset sales and a reduction in working capital.
Efficient use of production assets
UPMPaper ENA continued adapting its production to meet profitable
customer demand. Timely closures in 2015 and before, combined with
additional actions in 2016, improved the asset utilisation rates even further.
To secure a leading position as a reliable supplier, machine closures were
implemented without endangering UPM’s customer deliveries.
In 2016, UPMPaper ENA took several actions to optimise its operations
and keep the production efficient. Benefits may extend into 2017 and under­
pin a continued good performance.
InMay, paper production was ceased at the Madison mill in the US.
With the closure, UPMPaper ENA reduced 195,000 tonnes of magazine
paper capacity and continued to supply profitable demand from the
company’s European mills.
In July, UPM sold its Schwedt mill. As part of the transaction, the parties
entered into a contract manufacturing agreement for newsprint for a
transition period which will be ceased at the end of third quarter in 2017. The
machine will be converted by the new owner into liner production. The mill’s
capacity is 280,000 tonnes of newsprint. UPMPaper ENA will continue
newsprint production on its remaining newsprint paper machines.
In November, UPM announced plans to permanently close paper machine
3 at UPM Steyrermühl, Austria and paper machine 2 at UPMAugsburg,
Germany. With the closures decided in February 2017, UPMwill permanently
reduce 305,000 tons of its magazine paper capacity. Paper production
continues on the remaining cost competitive paper machines at the mill sites.
In 2016, demand for graphic papers decreased by 4% in Europe, a rate of
decline that falls well in line with the level in recent years. However, despite
the overall decline in demand, the market offers opportunities in certain end
uses and segments.
UPMPaper ENA’s differentiated commercial strategies paid off with solid
growth in certain niches and new products sales in 2016. The business area
strengthened its market position and improved customer loyalty. UPMPaper
ENA is also an established supplier in the US and enhanced its customer
relationships on the market.
Responsible fibre
Paper is a true Biofore product. It is a completely renewable material and
can be recycled efficiently. Products are sustainable over their entire lifecycle,
from forest to recycling. UPMPaper ENA has the most comprehensive
offering of papers carrying the EU Ecolabel in the industry. To further
promote responsible practices, UPM launched its first Responsible Fibre™
product family in 2016, that ensures the products comply with industry‘s
most demanding responsibility criteria.
The wood fibre rawmaterial is sourced from sustainably managed forests.
UPM embeds biodiversity as part of modern forest management. Production
process complies with the occupational and product safety requirements and
minimises impacts, waste and consumption of water and energy.
• Capital intensive process industry
• Engaged high performing people
• Community involvement and local
presence
• Virgin fibre from certified sources
• Recycled fibre
• Low-emission energy
CAPITALS
• Newspaper publishing
• Magazine publishing
• Advertising
• Direct marketing
• Home and office END USES
• Safe and certified products
• Safe working environment
and practices
• Vitality of local communities,
employment
• Operational excellence
• Recyclable products
• Responsible sourcing
• Low emissions
• Cash flow return on
capital employed
OUTCOMES
SOCIAL
IMPACT
ENVIRONMENTAL
IMPACT
ECONOMIC
IMPACT
UPM PAPER ENA
VALUE CREATED
Common operational platform for production,
supply chain and sales
Customer focus and offerings, wide product range
Leading and reliable supplier
Efficient and cost-competitive production
Environmental and technical expertise
Market-based, global sales
World class technical service
KEY FIGURES 2016 2015
Sales, EURm 4,818 5,056
Comparable EBIT, EURm 280 24
Capital employed (average), EURm 1,964 2,289
Comparable ROCE, % 14.3 1.0
FCF/CE, % 31.0 4.7
Personnel on 31 Dec. 8,664 9,472